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LGT Navigator: Investors in a persistent field of tension

June 30, 2020

Investors continue to focus on the unclear pandemic situation, especially in the US. Lockdowns that have been imposed again in some cases and an outlook for the US economy that is “exceptionally uncertain“ in the opinion of Federal Reserve Chairman Powell are causing uncertainty. On the other hand, economic data are pointing to a recovery. On Wall Street, cautious optimism again prevailed after the previous losses. However, the capital markets remain torn between corona worries and the hoped-for rapid economic recovery.

Investors in a persistent field of tension

Driven by robust US economic data, the Dow Jones Industrial rose strongly by +2.32% at the beginning of the week and closed at 25 595.80 points, after the stock market barometer had lost -2.8% on Friday. The broad S&P 500 also rose by +1.46% to 3 053.24 points and the technology-heavy Nasdaq 100 went up by +1.14% to 9 961.16 points. In Asia, the positive stock market trend continued. In Tokyo, the Nikkei index, which comprises 225 stocks, increased by +1.88% to 22 407.88 points.

New data from the US real estate market set a positive sign at the beginning of the week. According to this data, pending home sales in May recovered more strongly from the corona-related slump than analysts had expected. According to the National Association of Realtors (NAR), the number of pending home sales rose by +44.3% in May compared to the previous month. Analysts had expected a much more moderate recovery of +18%. However, the year-on-year decline was still around -5%. House sales that have not yet been fully completed are considered an early indicator for the US housing market, as they reflect the situation at an early stage in the transaction process.

In view of new record levels of new coronavirus infections reported daily ­ not only in the US ­ some US states feel compelled to shut down public life in some cases. Arizona, for example, has once again imposed a lockdown in Los Angeles, and beaches are being closed again.

US economic outlook subject to major uncertainties

According to Federal Reserve Chairman Jerome Powell, further economic development in the USA is extremely difficult to predict in view of the Corona crisis. The outlook is “exceptionally uncertain,“ Powell said at a hearing in Congress. A full economic recovery can only be expected once people feel completely safe again. It is also crucial, he said, how strongly the government supports the economy. On Monday the Fed also launched another emergency program to stabilize the financial markets. In the future, the central bank will be able to buy directly bonds from companies that had good credit ratings before the pandemic. With the Primary Market Corporate Credit Facility (PMCCF), the Fed could keep the money market liquid and provide large employers with credit.

Recovery trend in the euro zone confirmed

According to the latest survey results of the EU Commission, the mood of companies and private households in the euro zone continued to recover significantly in June from the slump in the Corona crisis. After the Economic Sentiment Indicator (ESI) had already brightened somewhat in May, the indicator rose by 8.2 points to 75.7 in June, the strongest monthly increase ever recorded. Most analysts had anticipated the recovery, and the consensus expectation was even a tick higher at 80 points.

Germany announces first green federal bond

Germany plans to issue the first environmentally sustainable federal bond in September. The goal is to develop Germany into a leading location for sustainable finance. The key points of the issue are to be determined in August. “We want to make a substantial contribution in the new ecological market segment,“ commented Federal Finance Minister Olaf Scholz and Federal Environment Minister Svenja Schulze.

France wants to become greener too

To make the French economy greener, President Emmanuel Macron announced investments of EUR 15 billion over two years. The announcement comes in the wake of the failure of Macron's La République en Marche party in last weekend's mayoral election. The green party won a victory in major cities such as Strasbourg, Lyon and Bordeaux. But on the other hand Macron rejected the proposal of a dividend tax of four percent. This would scare off investors and be counterproductive for France's economy.

British Prime Minister Johnson promises massive investment in domestic economy

Following the so-called “New Deal“ of US President Franklin D. Roosevelt, who led the United States out of the Great Depression with his program in the 1930s, Prime Minister Boris Johnson wants to lead the British economy out of the crisis with additional government funds. Among other things, the government is proposing a platform to provide companies with incentives for investment and training offensives, Reuters reported.

Economic Indicators June 30

MEZ Country Indicator Last
08:45 FR Consumer Prices (y/y) +0.4%
09:00 SP GDP Q1 (q/q) -5.2%
09:00 SZ KOF Economic Barometer  53.2
11:00 EZ Consumer Prices June (y/y) +0.1%
11:00 EZ Core Consumer Prices June (y/y) +0.9%
11:00 IT Consumer Prices June (y/y) -0.3%

Earnings Calendar July 14

Country Corporate Period
US JPMorgan Chase Q2
US Citigroup  Q2

 

 

 

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

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