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LGT Navigator: Nervousness remains tangible

March 26, 2020

The agreement in Washington on trillions of dollars in financial aid and the promises made by central banks and governments of practically unlimited economic stimulus packages to stem the negative effects of the corona crisis on the global economy initially led to an impressive recovery on the international stock markets. However, due to the continuing high level of uncertainty about the extent and consequences of the pandemic, the nervousness of stock market players and investors remains noticeable. In Asia, the recovery rally has already dried up again and investors' risk aversion has again taken the upper hand, which has once more put the stock market indices, particularly in Tokyo, under strong pressure.

Nervousness remains tangible

The 225-stock Nikkei index recorded a daily loss of around -4.5% shortly before the close of trading − but this was after the Japanese benchmark had posted its highest daily gain in eleven years the previous day. The fact that Singapore's economy collapsed in the first quarter, which is not a good omen for the rest of Asia, also contributed to risk aversion.  The futures markets also point to a negative opening on Europe's exchanges. A speech by US Federal Reserve Chairman Jerome Powell is also eagerly awaited today, especially his assessment of the severe economic damage to be expected from the coronavirus pandemic. Meanwhile, the majority leader in the House of Representatives, Chuck Schumer, emphasized that Congress will have to decide on additional crisis management steps in the coming weeks, even after the two trillion-dollar aid package that has just been passed.

Current labour market data eagerly awaited

According to James Bullard, President of the St. Louis Fed, the consequences of the corona crisis could cost up to 50 million jobs in the US in the short term. The two trillion-dollar aid package adopted by the US Congress to tackle the crisis has the appropriate weight to counteract the economic damage, said Bullard. It will be interesting to watch the weekly labour market data that will be released today at 13:30 (CET). This data may give a first impression of how deep the pandemic has already hit the job market. The highest level of initial applications for unemployment benefits to date was 680 000 in September 1982. Economists' estimate that about one million applications were made last week. Some forecasts even expect up to four million initial applications. On Friday a week from now, April 3, the official monthly statistics from the labour market will be available.

Little meaning of ”hard” US economic data

Durable goods orders reported yesterday from U.S. industry rose by a surprising +1.2% in February versus the previous month. Given that the coronavirus pandemic has taken some time to arrive in the United States, this hard data – i.e. effectively booked figures and not just survey data – is unlikely to truly reflect corporate uncertainty in this regard yet. However, analysts had already anticipated a decline of -0.9%. However, orders for civil capital goods (excluding military equipment and aircraft) were already down -0.8% month-on-month in February. This component is regarded as an indicator for the investment activity of companies.

Ifo: German economy is in shock

With the sharpest decline in the survey history and the lowest value since mid-2009, the business climate index of the Ifo Economic Research Institute highlights the uncertainty among the approximately 9 000 companies surveyed. The important economic barometer fell to 86.1 points in March, down from 96.0 points in February. A preliminary assessment published last week in an extraordinary manner had revealed a slightly higher value of 87.7 points. In view of the pandemic, the German economy is in shock and a severe recession must be expected due to the measures taken, or rather a collapse of the gross domestic product by five to 20%. The virus crisis will cause production losses amounting to hundreds of billions of euros and put a considerable strain on the labour market as well as the national budget, the Munich-based economic research institute commented.

Calls for ”corona bonds” are getting louder

Nine EU countries, including the heavyweights and countries severely affected by the corona crisis, such as Italy and Spain, but also France (as well as Portugal, Greece, Ireland, Belgium, Luxembourg and Slovenia), are calling for a ”common debt instrument” in view of the expected serious negative consequences of the pandemic. Yesterday, the heads of state and government of the nine countries met and discussed the possibility of joint debt instruments to be issued by a European institution. These should be ”of sufficient size and maturity“. Today the EU heads of state and government want to meet again via video conference to discuss the coronavirus.

SNB takes further measures to safeguard liquidity

The Swiss National Bank (SNB), in its fight against the effects of the corona crisis, has announced that it will make an unlimited refinancing facility available to commercial banks in order to provide the banking system with further liquidity if required. In addition, the SNB wants to reduce or suspend the countercyclical capital buffer for banks to zero percent with immediate effect. "In order to overcome this crisis, it is essential to supply the banking system with liquidity and loans for companies", the SNB explained its measures, which have been coordinated with the Financial Market Authority Finma.

 

 

Economic Indicators March 26

MEZ Country Indicator Last
08:00 GE GfK Consumer Climate Index  +9.8
08:45 FR Business Climate Index 105.4
10:30 UK Retail Sales (y/y) +0.8%
13:00 UK Bank of England Monetary Policy Decsion +0.1%
13:30 US GDP Q4 annualized (revision, q/q) +2.1%
13:30 US Personal Consumption Q4 (revision, q/q) +1.7%
13:30 US Core Personal Consumption Q4 (revision, q/q) +1.2%

Earnings Calendar March 30

Country Corporate Period
GE Stroeer Y19

 

 

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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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