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Wall Street starts week strong as Germany continues to struggle

German industrial production fell more steeply than anticipated, data released on Monday showed, leading some market participants to conclude that Europe’s largest economy may be headed for its second recession this year. On the other side of the Atlantic, stock markets started the week strong after a weak close last week.

Shane Strowmatt, LGT
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Industrial production in Germany fell by 1.5% in June when compared with the previous month. The German economy has already struggled for nearly a year, entering a recession in late 2022. A recession is generally defined as two quarters of gross domestic product (GDP) contraction. Preliminary data showed that Germany ended that recession in the second quarter of 2023.

In New York, stock indices started the week strong despite a warning from rating agency Moody’s, which downgraded ten US banks such as M&T Bank, Pinnacle Financial Partners and Prosperity Bank. It also placed some of the country’s largest lenders under review, mainly due to second-quarter results that showed profitability issues as a mild recession is on the way. Earlier this year, the collapse of US regional lenders caused instability throughout the US financial sector and beyond. The US benchmark KBW Bank Index nevertheless finished the day up 0.91%. Among the broader indices, the Dow Jones Industrial gained 1.16% to close at 35,473.13 points and the S&P 500 jumped 0.90% to 4,518.44 points. The Nasdaq-100 gained 0.87%, finishing Monday’s session at 15,407.85.

In individual stocks, Siemens Energy shares dropped 6.14% after the company booked 2.2 billion euros in costs associated with wind turbine quality. The company said that the issues at its wind turbine subsidiary could last for years.

Payments company PayPal launched a US-dollar stablecoin in an effort to tap into the digital currencies market. The PayPal USD stablecoin, which is intended to be pegged to the US-dollar, is backed by dollar deposits and short-term US government debt. Similarly, payments firm Visa began settling transactions using the USD Coin stablecoin in 2020. PayPal’s stock finished the day with a gain of 2.66%.

Saudi Aramco said net profit fell by about 40% in the second quarter, making it the next major oil company to report a massive year-on-year slump. The company’s shared still ended the day up 1.08%. The sector’s earnings were strongly affected by higher oil and gas prices last year following Russia’s invasion of Ukraine. Western oil companies such as ExxonMobil, Chevron, Shell and TotalEnergies all recently reported quarterly earnings that were much lower than the same period last year.

In Asia, stock markets were mixed on Tuesday after China released weak trade data. Imports into the world’s second-largest economy were down 12.4% in July when compared to the same period a year earlier, a much steeper fall than investors had anticipated. Likewise, exports were below market expectations, dropping 14.5%. The continued weak trade data calls into question China’s recovery since reopening its economy from a strict Covid policy at the beginning of the year. Hong Kong's Hang Seng Index led regional losses in early Tuesday trading, down 1.5%, while the Shanghai Composite fell 0.2%. More negative macroeconomic data came out of Japan, where household spending has been negative for four months in a row, falling 4.2% on the year in June. Nevertheless, the Nikkei 225 was able to pull off a mild gain, trading up 0.3% and in South Korea, the Kospi was down 0.3 and Australia’s S&P/ASX 200 gained 0.1%.

In Switzerland, the unemployment rate remained stable at a low 1.9% in July, data released Monday showed. At the end of last week, Switzerland’s KOF Employment Indicator came in at 10.5 points for the third quarter, slowly falling since the second quarter of 2022 but is still ahead of its long-term average of 1.0 points, signalling a strong labour market.

Corporate news in focus: Quarterly and half-year figures from Bayer, Glencore, Porsche Automobil Holding, UPS, Eli Lilly.

Economic data in focus: German Consumer Price Index (08:00 CET), French trade balance (08:45), US trade balance (14:30).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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