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LGT Navigator: Wall Street sets new records

November 18, 2019

Recent statements from the White House supported optimism about a preliminary settlement in the US-China trade dispute. This drove prices on the New York Stock Exchange to record highs on Friday. Meanwhile, latest US economic data showed a mixed picture, but the resilience of the US consumer was outweighing further negative signs from the US manufacturing sector.

US Stocks Wall Street

Investors' sentiment was also supported by the better-than-expected retail sales. Today, Asian equity markets started the new week mostly with gains thanks to the positive lead from overseas and a surprising easing of interest rates by the Chinese central bank. China's central bank today lowered its key interest rate for short-term loans (seven-day reverse repurchase rate) from 2.55% to 2.5% for the first time since 2015.

US economy - solid consumer demand vs. weak industry sector

Retail sales, which are regarded as an important indicator of US consumer spending, grew more strongly in October than analysts had forecast. Sales rose by +0.3% compared to the previous month (consensus +0.2%), thus making up for the decline of -0.3% reported in the previous month. Demand was particularly strong for cars and food. Online trading also performed well. On the other hand, latest survey results of the New York Fed on the state of the regional industrial sector were less positive. In November, the Empire State Index fell to +2.9 from +4.0 points in the previous month, suggesting continued weakness in the industrial sector. The New York central bank's economic barometer is the first regional indicator published every month by the Fed's branches. Together with the Philadelphia Fed's Philly Fed index, the indicators are seen as a precursor to the highly regarded ISM Purchasing Managers Industry Index. At the national level, industrial production slumped by -0.8% in October. Economists had expected only a half as strong decline. This was after production had already fallen by -0.3% in September.

Weak inflation provides ECB leeway

Inflation in the euro area remains weak and is now at its lowest level since November 2016. In October, the inflation rate weakened from 0.8% to 0.7%, well below the level of just under two percent targeted by the European Central Bank (ECB) for the medium term. The weak price pressure and the dwindling economy give the ECB good reason for an expansive monetary policy.

EU export surplus with the US increased

The EU countries' export surplus in trade with the US, which US President Donald Trump harshly criticized multiple times, increased in the first nine months of this year by around +13% to EUR 115bn. EU exports to the United States increased by +11.8% to EUR 334bn in the period from January to September. At the same time, imports from the USA into the EU also rose by +11% to around EUR 219bn. The high deficits with Europe or China in particular are the background for the ongoing trade war between the economic powers.

Aramco sets price range

Saudi oil company Aramco set the price range for what is probably the largest IPO to date between 30 and 32 riyal (about USD 8.00-8.53). However, Aramco plans to bring "only" 1.5% of its shares to the market, setting the estimated IPO value to about USD 1.6-1.7 trillion, clearly less than originally anticipated at USD 2 trillion. The final price is expected to be fixed on December 5.

Xerox rejects HP offer

The computer manufacturer HP rejected the takeover offer of copier and printer specialist Xerox as insufficient. About two weeks ago, Xerox had offered USD 17 per HP share and an additional 0.137 own shares, which would have put USD 33 billion on the table. On Friday, however, the HP share was already listed at around USD 20. According to analysts, HP leaves the door open for a possibly improved takeover bid by Xerox despite the rejection.

Volkswagen is pushing ahead with electric mobility

Between 2020 and 2024, Volkswagen plans to invest around USD 60bn in the further development of climate-friendly drive systems and digitization. USD 33bn alone is to be invested in electric mobility. CEO Herbert Diess said that VW is planning to increase the pace once again and exploit economies of scale and the greatest possible synergies. Up to 75 purely electric models are planned within the next ten years.

Roche acquires US biotech company

Roche, the Basel-based pharmaceutical group, is purchasing the American biotech specialist Promedior for up to USD 1.4bn. Promedior is developing an active substance to combat the lung disease IPF, which irreversibly reduces lung function. The acquisition secures all Roche's rights. Under the terms of the agreement, Roche will initially pay USD 390m in cash and will transfer USD 1bn subject to the achievement of certain regulatory approval targets.



Economic Indicators November 18

MEZ Country Indicator Last
16:00 US NAHB Housing Market Index 71.0

Earnings Calendar November 19

Country Corporate Period
SZ Sonova H1
IR Medtronic Q2
US Home Depot Q3



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Source: LGT Bank (Switzerland) Ltd.

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