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LGT Navigator: Markets take a breather

November 7, 2019

Equity investors seem to have taken a breather after the record hunt of the last few days. In view of the lack of entirely new impulses to wait for a partial agreement between the trade conflict parties, stock exchanges switched into consolidation mode. The focus today is also on the Bank of England, which, however, is likely to remain in a "wait-and-see" mode against the backdrop of the still pending Brexit.

Equity markets

In the US-Chinese trade dispute, the financial markets will have to be patient. According to the latest media reports, it could take until December before a partial agreement is ready to be signed. Currently, US President Donald Trump and his Chinese counterpart Xi Jinping are negotiating the location and conditions for a meeting. In a so-called "Phase 1" meeting the topics intellectual property, currency issues and financial services are to be clarified.

The British central bank should leave its key rate unchanged at +0.75% after its monetary policy meeting today at 13:00 (CET). Against the backdrop of the still ongoing uncertainties around the Brexit, central bank chairman Mark Carney will probably have to keep his powder dry in order to be able to react if necessary, should there be turbulence despite a regulated exit of the United Kingdom from the EU. However, Carney also recently stressed that a regulated Brexit would not necessarily result in an interest rate hike.

Siemens promises higher dividend

The Munich-based technology group reported a slightly higher operating result of EUR 9bn for the year end in September compared with the previous year. Order intake increased by +7% to EUR 98bn and sales rose by +5% to EUR 86.8bn. Net profit, however, decreased by -8% to EUR 5.6bn despite a significantly lower tax burden. Siemens shareholders are to receive a dividend increased by ten cents to EUR 3.90 per share. CEO Joe Kaeser was optimistic and said that the global economic slowdown had accelerated significantly during the fiscal year.

Deutsche Telekom raises profit forecast

Deutsche Telekom benefited in Q3 from the good performance of its US business and from acquisitions. Revenue increased by +4.8% year-on-year to EUR 20bn. Earnings before interest, taxes, depreciation and amortization (EBITDA AL), adjusted for non-recurring effects, increased by approximately +5.4% to EUR 6.5bn, as expected. In its outlook, the group's top management now assumes an EBITDA of EUR 24.1bn compared with the EUR 23.9bn previously forecast. In addition, Deutsche Telekom now holds out the prospect of a minimum dividend of 60 cents per share in the coming years. Previously, the guidance was at the lower end of 50 cents. Deutsche Telekom hopes that this will remove uncertainties surrounding the planned merger of the US subsidiary T-Mobile with its rival Sprint.

US productivity down for the first time in almost four years

The productivity of the American economy fell in the third quarter for the first time since the final quarter of 2015. Projected over the year as a whole, the productivity rate declined by -0.3%. Economists had assumed an increase of +0.9%. At the same time, unit labor costs rose faster than expected at an annualized rate of +3.6%.

IMF revises growth forecast for the euro zone

The International Monetary Fund (IMF) is assuming that economic growth in the euro zone in the current year will be less pronounced than previously assumed. A gross domestic product growth rate of +1.2% (previously +1.3%) is now forecast. The correction has been made in light of the recent signs of weakness in Germany. Here the IMF still expects GDP growth of +0.5% instead of the previously forecast +0.8%. In order to counteract an increasing economic weakness, the IMF is demanding a "synchronized fiscal reaction" from the governments of the euro countries. In addition, the IMF warns that the weakness in the industrial sector, aggravated by the trade conflict, could spread to the service sector.

Record low interest rates in Thailand

Thailand's central bank has further relaxed its monetary policy and lowered its key interest rate by a further 25 basis points to 1.25%. The official interest rate level is thus at a record low, which was last reached after the global financial crisis. The majority of the capital markets expected the second interest rate hike in the current year. The Thai economy is also feeling the effects of the trade conflict and the resulting gloomy outlook for the global economy on the one hand, and is also suffering from a strong domestic currency on the other. As inflation is low, the central bank still has room for manoeuvre in monetary policy.



Economic Indicators November 7

MEZ Country Indicator Last
08:00 GE Industrial Production (y/y) -4.0%
13:00 UK Bank of England Monetary Policy Announcment +0.75%

Earnings Calendar November 7

Country Corporate Period
GE Siemens Y
GE Deutsche Telekom Q3
GE Munich Re Q3
GE Lufthansa Q3
FR Veolia Environnement Q3
FR GDF Suez Q3
IT Telecom Italia Q3
US Walt Disney Q4



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Source: LGT Bank (Switzerland) Ltd.

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