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LGT Navigator: Will the US get the corona crisis under control?

June 26, 2020

Concern about whether the US will succeed in getting the corona virus pandemic under control is increasingly becoming the focus of the capital markets. In view of an accelerated and therefore alarming spread of the virus, there is a threat of renewed regional lockdowns. The corona crisis is thus also increasingly becoming a determining factor in the presidential election campaign. After initial losses, however, the stock indices on the New York Stock Exchange recovered, supported by a rapid recovery in order intake in US industry.

Will the US get the Corona crisis under control?

After several US states, including California, Texas and Florida, reported a record number of new coronavirus infections, New York, New Jersey and Connecticut yesterday imposed a two-week quarantine on inbound travelers from states with increased infection rates. As a result, the Dow Jones Industrial had to accept further losses after a loss of -2.7% the previous day. By the end of trading, however, corona worries had receded into the background again and the Dow closed with a gain of +1.18% at 25 745.60 points. The S&P 500 gained 1.1% and closed the day at 3 083.76 points. The Asian stock markets showed a mixed picture today. In Tokyo, the Nikkei index of 225 stocks gained +1.27% to 22 543.10 points at the end of the week, while the MSCI index for Asian stocks outside Japan fell by around -1%.

US industry feels pent-up demand after historic slump

A positive signal was sent yesterday by US industry, which reported a surprisingly strong increase in durable goods orders in May. Orders for goods such as machinery and aircraft rose +15.8% month-on-month in May. The recovery follows a slump of around -18% in April. Orders for civil capital goods (excluding military equipment and aircraft), which are widely regarded as an indicator of corporate investment activity, rose by +2.3% in May (consensus +1.0%).

The latest US data on initial jobless claims showed that a total of 1.48 million Americans filed for unemployment benefits for the first time in the week ending June 20. Although the number of first-time applications has declined somewhat, the level remains at the crisis level. Since the outbreak of the corona crisis, over 40 million people in the United States have lost their jobs.

Even if a glance in the rear-view mirror is not decisive for the stock markets, the collapse of the US economy in the first quarter nevertheless illustrates the extent of the corona crisis. According to revised figures, the world's largest gross domestic product shrank in the first three months at an annualized rate of -5%, the sharpest decline since the financial crisis around twelve years ago. Due to the pandemic-related economic standstill, an even more significant slump must be expected in the second quarter. The International Monetary Fund (IMF) is forecasting a slump of -8% for the US economy in the current year.

The German “crane“ can fly on thanks to state aid

After much to and fro, Lufthansa (and thus Swiss) secured its temporary survival. However, with state support totaling EUR 9bn, the state will also be flying in the Lufthansa cockpit in future. Yesterday, at an Extraordinary General Meeting, the shareholders gave the green light for the state aid package and thus also for the state's participation with 98% of the votes. In the end, major shareholder Heinz Hermann Thiele, who had previously expressed reservations about the state's entry into Lufthansa, also voted in favor. Otherwise the airline would have been threatened with insolvency. Supervisory Board Chairman Karl-Ludwig Kley had already issued an impressive warning at the start of the virtual shareholder meeting: “We have no more money“.

Export expectations of German companies are recovering

According to a recent survey by the Munich-based Ifo Institute, the 2300 German export companies surveyed are once again significantly more confident about their business expectations. Accordingly, the export expectations index climbed from minus 26.7 points in the previous month to minus 2.3 points in June. Car manufacturers and companies from the pharmaceutical sector in particular made positive comments.

German consumers see weak light at the end of the tunnel

In Germany, consumer sentiment brightened again in July thanks to the easing of the lockdown, but remains fragile given the ongoing uncertainties in the corona crisis. The consumer climate barometer of the Nuremberg-based consumer research company GfK improved from minus 9.6 points in June to minus 18.6 points in July. “We are not out of the woods yet, but the faint light at the end of the tunnel is getting a little brighter“, commented GfK. An important question will be how many of the approximately seven million short-time workers will then effectively lose their jobs. For this reason, the fear of losing their jobs will continue to put pressure on the consumer climate. The institute surveyed around 2000 private households throughout Germany between June 3 and 15.

ECB helps other central banks

The European Central Bank (ECB) yesterday announced that it will provide liquidity in euros to central banks outside the euro zone until the end of June 2021. The so-called Repo Facility for Central Banks (EUREP) is intended as a preventive measure in case a liquidity bottleneck should arise outside the European Monetary System as a result of the corona crisis. As collateral, the central banks should be able to submit bonds issued by euro countries and supranational organizations in the euro area.

Canada loses one AAA-rating

The rating agency Fitch has withdrawn Canada's triple-A rating due to the economic downturn and the extraordinary fiscal response in the corona crisis. Fitch downgraded the rating from “AAA“ to “AA+“. This makes Canada the first triple-A country to lose its highest rating due to the corona crisis. Meanwhile, Moody's and Standard & Poor's are maintaining their “AAA“ rating for Canada for the time being.

Economic Indicators June 26

MEZ Country Indicator Last
08:45 FR Consumer Confidence June 93.0
11:00 IT Economic Confidence June 51.1
11:00 IT Business Climate June 72.2
11:00 IT Consumer Confidence June 94.3
14:30 US Personal Consumption May (m/m) -13.6%
14:30 US Personal Income May (m/m) +10.5%
14:30 US PCE Core (Inflation) Index May (m/m) -0.4%
14:30 US PCE Core (Inflation) Index May (y/y) +1.0%
16:00 US Consumer Sentiment University of Michigan June (final) 78.9

Earnings Calendar July 14

Country Corporate Period
US JPMorgan Chase Q2
US Citigroup  Q2




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Source: LGT Bank (Switzerland) Ltd.

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US employment growth remains dynamic at the beginning of the year