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LGT Navigator: US Fed decision and geopolitical risks in focus

June 17, 2019

As investors focus their attention on the Fed's interest rate decision on Wednesday, capital markets will continue to face the looming escalation of the trade conflict and geopolitical tensions in the Gulf region.

Navigator_Geopolitics

The increased risk factors and the resulting danger of a global economic slowdown will increase the pressure on the US Federal Reserve (Fed). However, Fed Governor Jerome Powell and his team are unlikely to loosen interest rate restraints this Wednesday, but the financial markets are already expecting three rate cuts by the end of the year. The Bank of England and the Bank of Japan are also due to make monetary policy decisions on Thursday. Furthermore, the intensified tensions between the USA and Iran following the alleged attacks on two tankers in the Gulf of Oman are currently increasing investors' risk aversion. Regarding the trade war, US Secretary of Commerce Wilbur Ross dampened hopes for a quick end to the conflict between the US and China. In the Wall Street Journal, Ross said that the G20 summit in Japan is likely to produce nothing more than an agreement to actively resume negotiations. In view of the expected meeting of US President Donald Trump and China's President Xi Jinping at the G20 summit in Osaka at the end of June, the capital markets hope for a foreseeable solution to the trade conflict. Against this backdrop, the mood on stock markets remains fragile and a sales warning from US semiconductor group Broadcom put pressure on the technology sector. The Nasdaq 100 lost nearly half a percent on Friday.

Latest economic data from the US encourages optimism

The US retail sector recorded solid sales growth of +0.5% in May compared with the previous month. Almost all categories were positive in May, with car sales in particular making a strong contribution of +0.7%. Car sales account for around one fifth of total US retail sales. In addition, retail sales for April were strongly revised to +0.3% from the previously reported decline of -0.2%. The consumer mood in the US thus appears to remain stable, even though the consumer confidence barometer calculated by the University of Michigan clouded somewhat in June. The consumer sentiment index fell from 100.0 points in May to 97.9 points in June. Data for US industrial production came in better than expected. Accordingly, production in May increased strongly by +0.4% compared to the previous month. Analysts had forecast a +0.2% gain.

Brussels remains tough towards Rome

The EU Commission is demonstrating its severity in the conflict with Italy's government and is pushing ahead with preparations for an excessive deficit procedure against the third largest economy in the euro zone. However, if Rome were to take measures to comply with the stability criteria, the procedure could still be averted, said EU Economic Affairs Commissioner Pierre Moscovici at the meeting of euro finance ministers in Luxembourg. Italy's Deputy Prime Minister Matteo Salvini has so far insisted on tax cuts despite the difficult financial situation. A deficit procedure could result in billions in penalties for Italy.

Deutsche Bank plans for bad bank

According to the Financial Times, Deutsche Bank is planning a billion-euro bad bank in the course of the restructuring, which will hold investments of up to EUR 50 billion. In addition, the bank intends to significantly reduce its equity trading and interest rate trading transactions or even close them completely. According to the report, Deutsche Bank CEO Christian Sewing could present the plan at the announcement of the half-year results at the end of July.



Economic Indicators June 17

MEZ Country Indicator Last
14:30 US NY Fed Empire State index 17.8
16:00 US NAHB Housing market index 66.0

Earnings Calendar June 19

Country Corporate Period
US Oracle Q4

 

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Quelle: LGT Bank (Schweiz) AG