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LGT Navigator: Stabilization in sight?

August 7, 2019

A small ray of hope in the current dark investor sky: The US-American S&P 500 Index closed with a plus of +1.3% after more than a week of red figures. Other US indices did the same, Asian markets seem to stabilize, whereas European indices closed with a further decline.


However, according to Bloomberg analysts, a deep look into the matter of the sell-off gives us a warning. Looking at indicators, the selling did not reach the levels of panic hit in May and December. The lack of a sentiment washout bolsters investors who warn that a stronger pullback lurks, as almost all equity gains year-to-date were driven by valuation expansion, not profit growth. A sense of panic is currently missing. During the current 10-year-bull run, while bears have been foiled numerous times, this time may be different as the Fed damped hopes for a prolonged easing and the geopolitical situation is not getting more stable.

German economic outlook gloomy amid increasing orders

The latest prints of German factory orders were more than welcome for the biggest European economy after the rather grim news flow. They rebounded in June by +2.5% as demand recovered a bit, offsetting the decline in May. However, they remain low and experienced their lowest level in seven years in May. Industrial production data also showed a bigger drop than expected to -5.2, the lowest value since the crisis year of 2009. Germany's export sensitive industry is highly dependent on trade, which is now taking its toll as some trade relations are challenged.

China takes steps to limit yuan weakness

China wants to bring some stability to financial markets after the plunge of its currency on Monday. Bringing back some trust to the markets is crucial. The Chinese state banks have been active this week in the onshore yuan forwards market, using swaps to tighten dollar supply and support the Chinese currency, according to Reuters. Officials said it will not depreciate the yuan to be competitive, rejecting the loudish manipulation allegations from the USA. This statement helped stabilize the yuan, after reaching the lowest value against the US dollar since a long time. China let the yuan fall past the key level of 7 on Monday, with the blame on US protectionism. An eventual further decline of the currency could cause instability in the markets and further capital flight, something officials wanted to avoid in the recent past.

Gold as shining as ever

The past days, the rough mood in the financial markets has led to an increasing flight of capital into safer investments. One of the main beneficiaries of the Sino-American sabre-rattling was gold: futures had already reached prices of over USD 1,500 per troy ounce of gold, the highest level since 2013. The spot price has meanwhile reached almost USD 1,490. Other precious metals also fulfil their function as safe havens, including silver, which reached an annual high of USD 16.8.



Economic Indicators August 7

MEZ Country Indicator Last
08:00 DE Industrial production (y/y) -3.7
08:00 DE Industrial production (m/m) 0.3

Earnings Calendar August 7

Country Corporate Period
NL Koninklijke Ahold S1
DE Continental Q2
CH Glencore S1
DE Münchener Rückversicherung Q2



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Core Personal Consumption Expenditure
MEZCountryIndicatorLast08:00DERetail Sales (y/y)-1.7%08:45FRConsumer Prices EU Harmonized (y/y)1.4%09:00ESGDP (y/y)2.4%09:55DEUnemployment Rate5.0%11:00EUGDP (y/y)1.2%11:00EUCore Consumer Prices (y/y)1.1%11:00EUUnemployment Rate7.5%11:00ITConsumer Prices EU Harmonized (y/y)0.8%12:00ITGDP (q/q)0.12%14:15USADP Employment Report102k20:00USFederal Funds Target Rate2.5%