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LGT Navigator: A step on the brake

September 4, 2020

On the New York Stock Exchange, the record series driven by technology stocks was initially slowed down by widespread profit-taking. In Asia, most stock indices followed the lead of the US, posting daily losses in the range of one to two percent at the end of the week. Investors are now eagerly awaiting the latest US labor market data.

Technology stocks profit taking

The record series of technology stocks was halted for the time being yesterday. The Nasdaq 100 closed -5.23% lower at 11 771.36 points. The background was mainly profit-taking after the sometimes spectacular price gains of some technology stocks, such as Facebook, Amazon, Apple or Google. After the massive price gains, investors seem to question the sustainability of the high valuations of some tech stocks. The broad market S&P 500 followed with a daily loss of -3.51% to 3 455.06 points and the Dow Jones Industrial dropped -2.78% to 28 292.73 points. The Asian stock markets largely followed the negative trend on Wall Street. However, the losses were not as severe as on Wall Street. The broad MSCI Asia Pacific Index lost around -1.4%.

Does the US labor market statistics provide new impulses?

Once again, the monthly US labor market report from Washington is available this afternoon. Analysts are unanimously forecasting an increase in employment (excluding the agricultural sector) of 1.35 million in August. The figures published yesterday on the weekly initial applications for unemployment benefits give hope for a sustained, albeit laborious, recovery. As a result, 881 000 Americans applied for unemployment benefits in the week to August 29, compared to 1,011 million the week before. This means that the number of applications for unemployment is steadily declining, the lowest figure since mid-March. However, the situation on the labor market remains tense in view of the rising number of new Covid-19 infections in many places.

American service sector remains on course for recovery

The survey results of the Institute for Supply Management, the industry association of US purchasing managers, indicated that the successful recovery from the corona shock is faltering somewhat. The ISM purchasing managers' index for the services sector fell in August from 58.1 points in the previous month to 56.9 points, but still remains solidly above the 50 mark and continues to signal growth in the sector. Analysts had anticipated a more moderate decline to 57.0 points. The number of new orders in particular was weaker. In contrast, the Purchasing Managers' Index published at the same time by the London research institute IHS Markit improved from 50.0 to 55.0 points (consensus 54.7). The PMI Composite, which is calculated for the entire private sector, also improved, rising from 50.3 to 54.6 points. The growth in the service sector and the improved picture in the industrial sector pointed to an impressive economic recovery in the third quarter, commented IHS Markit Chief Economist Chris Williamson.

France plans EUR 100bn corona package

The French government wants to lead the economy out of the corona crisis with EUR 100bn or four percent of GDP. Among other things, the economic stimulus package is intended to create at least 160 000 new jobs next year and to promote environmentally friendly energies, said French Prime Minister Jean Castex. The pandemic-related lockdown had hit the second-largest economy in the euro zone hard, and GDP slumped by almost -14% in the second quarter compared to the previous quarter.

Weaker recovery momentum in the euro zone

In the eurozone, the recovery appears to be losing some of its momentum, given the resurgence of corona infections in many euro countries. This is the conclusion drawn by the summarized purchasing manager survey results of IHS Markit. The purchasing managers' index for the services and industrial sectors (PMI Composite) fell more sharply than economists had expected in August, falling from 54.9 points in July to 51.9 points. The economic situation is viewed less optimistically, particularly by service providers in the euro area. The corresponding indicator fell in August to 50.5 from 54.7 points. The recovery appears to have slowed down considerably, particularly in Italy. The PMI Composite fell from 52.5 in July to 49.5 points. IHS Markit commented that the first upward thrust in the consumer-related sectors has already subsided somewhat after the end of the lockdown. In the industrial sector, the mood of the companies surveyed remained virtually unchanged in August compared with the previous month, and the PMI signaled continued growth in the sector at 51.7 points.



Economic Indicators September 4

MEZ Country Indicator Last
08:00 GE Factory Orders (July, y/y) -11.3%
14:30 US Unemployment Rate (August) 10.2%
14.30 US Non-Farm Payrolls (August) +1.763m

Earnings Calendar September 13

Country Corporate Period
US Oracle Q1


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US employment growth remains dynamic at the beginning of the year