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LGT Navigator: Euro area growing again

August 6, 2020

After the slump of the last few months, the euro area is now back on a growth path. According to the Markit Institute, the purchasing managers' index for industry and service providers in the Monetary Union area rose from 48.5 to 54.9 points, i.e. back above the neutral 50-point threshold.  However, this jump was not a surprise.

Earnings season remains in focus of stock markets

After months of crisis and little visibility in the context of the corona crisis, the survey value rose for the first time since February, noting the highest growth rate in over two years. The emerging economic revival took place more in the service sector than in the industrial sector. At 51 points, the industrial sector was only slightly above the growth threshold. For example, the order books of German mechanical engineering companies are becoming increasingly thin as a result of the poor investment demand. A reversal of the trend and thus the low point is not yet in sight, as the German industry association VDMA announced. Although supply chains in industry have stabilized, demand is lacking due to the high level of uncertainty. In the mechanical engineering sector, which is considered the backbone of the German economy, 70% of companies are currently using short-time work. Without the massive government support, around 700,000 jobs would be at risk in this sector alone.

Recovery of US labor market is losing momentum

Private payrolls in the USA increased by 167 000 jobs last month, according to the latest ADP National Employment Report, implying a sharp slowdown from last month's recovery. This is significantly weaker than expected by economists who anticipated 1.2 million new payrolls on average. The step-down in job growth is confirmed by latest unemployment data. A cause for the slowdown may lie in the exploding coronavirus cases, especially in the densely populated regions where the government is reclosing businesses and re-openings are paused. More comprehensive employment data will be published on Friday by the US government.

Swiss economy defies corona crisis

According to the KOF economic research unit at ETH Zurich, the Swiss economy will suffer less from the Covid-19 crisis than other European countries. Although the economic environment and the countermeasures are still challenging, the institute's latest study shows that the financials of companies are gradually improving. Meanwhile, around 14% of the 4 500 companies surveyed believe that their operations are on the brink of bankruptcy. The labor market also appears to have brightened slightly. One advantage for the Helvetic economy is the diversified value creation, including a pharmaceutical and financial sector, which has not suffered as much from the crisis. In its main scenario, the KOF assumes that there will be no second wave and that the Swiss economy will shrink by 4.9%. This is slightly more optimistic than the Institute's June announcements. The road will be rocky: even with a recovery in 2021, GDP is not expected to return to pre-crisis levels by the end of 2021. However, should a second wave actually occur, a contraction of 6% is even expected.

Economic Indicators August 6

MEZ Country Indicator Last
08:00 GB Bank of England rate 0.1%
08:00 D Factory orders (year-on-year) -29.3%
10:00 I Industrial productions (year-on-year) -20.3%
14:30 USA Initial jobless claims 1'434'000

Earnings Calendar August 6

Country Corporate Period
CH Adecco S1
D Adidas Q2
D Beiersdorf S1
USA Bristol-Myers Squibb Q2
F AXA S1
D Henkel Q2
D Merck KGAA Q2
DK Novo Nordisk Q2
D Siemens Q3

 

 

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: David Wolf, +41 44 250 83 48, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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US employment growth remains dynamic at the beginning of the year