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LGT Navigator: Cocktail of worries weighs on stock market sentiment

August 20, 2021

Several negative economic indicators, rising corona case numbers worldwide, geopolitical uncertainties and the prospect of an imminent tightening of monetary policy by the Federal Reserve are currently causing increased risk aversion among investors on stock markets.

Cocktail of worries weighs on stock market sentiment

On the US equity markets, the Dow Jones Industrial closed -0.19% lower at 34'894.12 points and was thus unable to recover from the previous losses. The S&P 500 rose slightly by +0.13% to 4'405.80 points and the technology exchange Nasdaq even went up by about half a percent. In Asia, meanwhile, the negative trend continued at the end of the week. In Tokyo, the Nikkei 225 index trades around -0.9% lower and in Hong Kong, the Hang Seng loses today even around -2.5%.

After the minutes of the latest Fed meeting published on Wednesday showed that the majority view in the monetary policy council (FOMC) is to start reducing bond purchases (QE) this year, the focus is now on the upcoming central bank meeting in Jackson Hole, Wyoming, on August 26-28. Fed Chairman Jerome Powell could use the opportunity to signal a turnaround in interest rates to the financial markets.

Supply bottlenecks weigh on the US industry

After the Empire State index of the New York Fed already indicated a weakening in the regional industrial sector, the Philly Fed index of the central bank of Philadelphia published yesterday confirmed this trend. According to the index, business confidence also deteriorated in August, and this for the fourth month in a row. The indicator fell by 2.5 points to 19.4, while analysts had expected an increase to 23.1 points. A value above zero points indicates an increase in economic activity, while a value below zero signals a decline. A more complete picture of the state of US industry will then be provided on September 1st by the national purchasing managers survey of the industry association ISM.

Good news from the US labor market

The weekly labor market data from the US signal a further recovery from the corona slump. Thus, the number of initial claims for unemployment benefits fell by 29'000 to 348'000 claims last week (consensus 364'000). Despite the recent decline, however, the number of initial jobless claims is still above the level seen before the corona crisis. In its minutes published on Wednesday (FOMC minutes), the Federal Reserve noted that the recovery in the labor market was progressing, but that the goal of full employment was still a long way off.

Goldman Sachs lowers growth forecast for US economy

New York-based investment house Goldman Sachs expects the US economy to grow at a slightly slower pace in the third quarter. Against the backdrop of the spread of the delta variant, the bank lowered its forecast for an annualized growth rate from +9.0% previously to +5.5%. The main problems are the noticeable disruptions in the supply chains. For 2021, Goldman Sachs now expects economic growth of +6.0% (previously +6.4%) and for 2022 of +4.5% (previously +4.4%).

Norway's central bank holding out

As expected, the Norwegian central bank left its key interest rate unchanged at zero percent. However, Norges Bank stated that an initial rate hike since the corona crisis is most likely as early as September. The background to this is an inflation rate of +3.0%, which is well above the central bank's target of two percent.


Economic Indicators August 20

MEZ Country Indicator Last period
08:00 UK Retail Sales (July, y/y) +7.4%
08:00 GE Producer Prices (July, y/y) +8.5%


Earnings Calender August 20

Country Company Period
US Deere Q2


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Source: LGT Bank (Switzerland) Ltd.

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