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LGT Navigator: Increased risk aversion

August 18, 2021

Increased risk aversion is spreading on equity markets on the backdrop of heightened fears that the recovery of the global economy could falter, the virus mutations could destroy the successes achieved so far in the fight against the pandemic, or the situation in Afghanistan could provide geopolitical tensions. 

Increased risk aversion

The Dow Jones Industrial lost -0.79% to 35'343.28 points on Tuesday, after reaching another record high the previous day. The market-wide S&P 500 also fell by -0.71% to 4'448.08 points. On the Nasdaq, the indices fell by almost one percent and the Nasdaq 100 traded at times at the lowest level in two weeks. In Asia, most stock indices trended sideways on Wednesday. New Zealand's central bank left its key interest rate unchanged against expectations at +0.1% in view of the renewed uncertainties regarding the corona pandemic. Analysts had actually expected an initial rate hike of up to 50 basis points. The focus of interest today is the minutes of the Federal Reserve's Monetary Policy Committee (FOMC minutes).

Fed Chairman Jerome Powell said at an event yesterday that it remains unclear what the recent increase in Covid-19 infection numbers means for the US economy. However, Powell did not comment on the outlook for the monetary policy.

Bleaker outlook for consumer climate in the US

A much sharper-than-expected decline in US retail sales points to a gloomier outlook for consumer spending in the United States. According to the latest data, retail sales declined by -1.1% in July compared with the previous month, while analysts had expected a much smaller drop of -0.3%.

On the other hand, US industrial production increased more than expected and for the third month in a row. Compared to the previous month, industrial output increased by +0.9% in July, exceeding the market consensus of +0.5%.

Japan's exports show strong recovery

Japanese exports rose +37% year-on-year in July, driven by strong demand for cars and auto parts in the US and for chips and semiconductor equipment in China. The fifth consecutive monthly increase confirms the ongoing recovery trend.

Euro economy gains momentum in second quarter

Economic growth in the eurozone accelerated significantly in the second quarter compared with the previous quarter. With the easing of many corona measures, GDP expanded by +2%, confirming one of the economists' expectations. In the previous two quarters, the euro-area economy had contracted by -0.3% and -0.6% respectively. The strongest growth in the second quarter was reported by Spain with +2.8%, followed by Italy (+2.7%), Germany (+1.5%) and France (+0.9%).

China's government increases pressure on internet companies

China's regulator is looking to tighten the reins on domestic technology companies with new regulations. The regulator SAMR yesterday announced a series of regulatory proposals to curb market abuse and uncontrolled data processing by internet companies. The shares of the large Chinese tech companies Alibaba or Tencent came under pressure as a result.


Economic Indicators August 18

MEZ Country Indicator Last period
08:00 UK Consumer Prices (July, y/y) +2.5%
08:00 UK Core Consumer Prices (July, y/y) +2.3%
08:00 UK Producer Prices (July, y/y) +4.3%
11:00 EZ Consumer Prices (July, y/y) +2.2%
11:00 EZ Core Consumer Prices (July, y/y) +0.7%
14:30 US Housing Starts (July, m/m) +6.3%
14:30 US Building Permits (July, m/m) -5.3%
20:00 US FOMC Minutes


Earnings Calender August 18

Country Company Period
SZ Emmi H1
DK Carlsberg H1
US Cisco Systems Q2
US Target Q2
US Nvidia Q2


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Source: LGT Bank (Switzerland) Ltd.

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