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LGT Navigator: Powell's words calm stock markets for now

February 25, 2021

Statements by Fed Chairman Powell that inflation was still far from the target range and that the Fed was still prepared to use its entire monetary arsenal provided only brief relief on stock markets. In addition, positive news regarding Covid-19 vaccinations and strong data from the US real estate market also led to a renewed increase in risk appetite among equity investors. However, fears that rising government debt as a result of the dual stimulus to contain the corona crisis will fuel inflation more than expected, pushing up bond market yields, are likely to have taken hold in the capital markets.

Powell's words calm stock markets for now

Federal Reserve Chairman Jerome Powell was able to allay investors' fears of further increases in bond yields somewhat at his semi-annual hearing in the US Congress. In addition, the Fed Chairman reiterated that the central bank would maintain its expansionary monetary policy and securities purchases for the foreseeable future in order to lead the economy out of the corona crisis – one of the cornerstones of the stock market rally. After the Dow Jones Industrial came under pressure at the beginning of the trading day, the stock market barometer recovered and even reached another record high of just under 32'010 points. At the close of trading, the Dow was quoted with a solid daily gain of +1.35% at 31'961.86 points. The market-wide S&P 500 closed +1.14% higher at 3'925.43 points. Wanted were particularly energy, industrial and financial stocks. The banking index reached yesterday the highest level since 2007. On the Nasdaq technology exchange, the recovery from recent losses was not so strong. The selection index Nasdaq-100 index lost in early trading still -1.2% and then ended Wednesday +0.81% higher than the previous day at 13'302.19 points.

The mood on stock exchanges was also positively affected by the news that the Covid-19 vaccine from Johnson & Johnson, which requires only one dose, was approved in the United States and according to the US Food and Drug Administration (FDA) shows high effectiveness. The latest data from the US housing market was also well received. For example, new home sales rose unexpectedly strongly in January. New home sales increased at the beginning of the year by +4.3% compared to the previous month, while economists had expected a much smaller increase of +1.7%.

In Asia, the stock exchanges rose today across the board and for the European stock markets, the futures signal a positive start to trading. In focus today is also the EU video summit, which runs until Friday. The members of the European Council will discuss, among other things, the status of the pandemic.

IMF chief warns of dangerous divergence as a result of corona crisis

There is a risk, she said, that many developing countries will be weakened by the pandemic for years to come, while advanced economies and a few emerging economies will recover more quickly. This dangerous divergence must be avoided at all costs, IMF Managing Director Kristalina Georgieva said. Therefore, she said, G20 countries must now work more closely together and adopt policies to help poor countries procure and distribute Covid-19 vaccines. There needs to be a redistribution of surplus vaccines from surplus to deficit countries, she said. The IMF estimates that by the end of 2022, cumulative per capita income in emerging and developing countries (excl. China) will be about 22% below pre-crisis levels.

German economy gets through the crisis slightly better than feared

GDP figures confirmed yesterday by the Federal Statistical Office showed that the German economy grew by +0.3% quarter-on-quarter in the final quarter of 2020, despite the renewed lockdown. Growth in the fourth quarter was supported by exports and construction investment, while private consumer spending fell sharply by -3.3% compared with the previous quarter. For the year as a whole, the German economy contracted by -4.9%, slightly less than previously calculated at -5%. Last year, spending on the billion-euro corona aid packages was offset by falling revenues. Tax revenue decreased significantly, partly due to the temporary reduction in value-added tax. For the current year, the German government in Berlin is currently forecasting economic growth of +3%.

French companies show more pessimism

The mood of French companies deteriorated in February due to the persistently high number of new Covid-19 infections. The business climate barometer dropped from 91 to 90 points. Prior to the decline at the beginning of the year, business sentiment had tended to recover from the corona slump. The companies surveyed in the service and retail sectors in particular were more pessimistic. The background to this is the continuing tense pandemic situation in France. The government in Paris is currently considering renewed restrictions. According to government spokesman Gabriel Attal, the situation has deteriorated again and in around ten Départements the situation is even very worrying.


Economic Indicators February 25

MEZ Country Indicator Last
08:00 GE GfK Consumer Climate (March) -15.6
08:45 FR Consumer Sentiment (February) 92.0
10:00 IT Consumer Sentiment (February) 100.7
11:00 EZ Economic Sentiment (February) 91.5
11:00 EZ Consumer Inflation Expectations (February) 15.4
14:30 US GDP Q4 (q/q, annualized) +4.0%
14:30 US Consumer Spending Q4 (q/q) +2.5%
14:30 US Duarble Goods Orders (January, m/m) +0.7%
14:30 US Initial Jobless Claims (weekly) 861,000
16:00 US Pending Home Sales (January, m/m) -0.3%

Earnings Calendar February 25

Country Corporate Period
SZ Adecco Q4
GE Bayer Q4
GE Munich Re Q4
FR Veolia Q4
FR Saint Gobain Q4
BE Anheuser-Busch Inbev Q4
SP Telefonica Q4
UK Anglo American Q4
UK Standard Chartered Q4
UK Centrica Q4
US Hewlett Packard Q4


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US employment growth remains dynamic at the beginning of the year