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LGT Navigator: Clouded rate cut expectations

July 9, 2019

The expectations of an imminent rate cut by the Fed, dampened by the latest US labor market report, led to a mostly dampened start to the week. In addition to central bank policy, the unresolved trade conflict and tensions with Iran, the upcoming corporate reporting season is also likely to become the focus of attention.


The speech by US Federal Reserve Chairman Jerome Powell to the Congress in Washington on Wednesday is expected to be very exciting. Investors are hoping for indications of a possible easing of interest rates when the Fed makes its next monetary policy decision on July 31. The start of the US balance sheet season with Citigroup's quarterly results on 15 July is likely to set the tone for the stock markets. This will reveal whether the weak earnings growth observed in the first quarter was merely a slip-up or whether it must be seen as a first sign of a profit recession. In addition to the actually reported quarterly figures, the outlook for the blue chip companies will also be of central importance.

Profit warning from BASF

In view of the risks to the global economy posed by the trade conflict and the weak automotive industry, BASF again lowered its annual targets. After a weak second quarter, the chemicals group now expects adjusted operating profit (EBIT) for the full year to decline by up to 30%. Previously, the company had assumed growth of one to ten percent. BASF now also anticipates a slight decline in sales, instead of growth of up to five percent as before.

Increasing pessimism among German investors

According to the latest survey results of the German financial market analysis company Sentix, the outlook of the investors surveyed for the further development of the German economy has become considerably gloomier in July. The corresponding economic barometer fell from minus 0.7 points in June to minus 4.8 points, its lowest level for almost ten years. The high dependence on exports and the Chinese sales market in the midst of the trade dispute increasingly burdened the German economy, commented Sentix. Similarly, the indicator for the euro area fell to its lowest level since November 2014.

OECD leading indicators point to cautious stabilization of the global economy

According to the Organisation for Economic Co-operation and Development (OECD), economic growth is stabilizing in most of the world's economies after months of slowing momentum. Stabilization was seen above all in Japan and Canada as well as in Great Britain, while the momentum in the US and in the euro area, especially in Germany and Italy, had slackened. Overall, the monthly leading indicator, which is intended to signal the turning point in the growth cycle of the OECD countries at an early stage, fell only slightly by 0.1 points to 99.0 points in May. In the major emerging markets, OECD indicators continued to point to stable growth momentum in the non-OECD countries China, India and Russia, as well as in Brazil. Nevertheless, the risk of a further escalation of the trade conflict is likely to remain a decisive factor.

Economic Indicators July 9

MEZ Country Indicator Last
07:45 SZ Unemployment Rate s.a. 2.4%
08:00 NOR GDP (m/m) +0.2%

Earnings Calendar July 15

Country Corporate Period
US Citigroup Q2



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