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LGT Navigator: Agreement in Brussels, EU adopts historic corona aid package

July 21, 2020

In the fight against the corona crisis, the 27 EU states agreed on the largest budget and financial package in the history of the Union after more than four days of negotiations. The agreement in Brussels is likely to support the cautiously positive sentiment on capital markets at the beginning of the week.

EU Corona Sumit

At the special summit in Brussels, the European Union reached agreement on a historic budget and financial package after a tough struggle. Within the framework of the seven-year EU budget, the package contains a total of EUR 1.8 trillion, of which EUR 750bn is earmarked for the economic recovery and investment program to counter the effects of the pandemic crisis. The resources of this recovery fund are intended to help the countries most affected by the pandemic, such as Italy and Spain, out of the crisis. The so-called “Savings Four“, i.e. the Netherlands, Austria, Denmark and Sweden, prevailed with their demand that the (non-repayable) grants to the countries in need be significantly reduced ­  from EUR 500bn to now EUR 390bn and an additional EUR 360bn in (refundable) loans. With this financial package, the EU wants to jointly counter the economic slump and hold the EU internal market together. At the same time, investment is to be made in the conversion to a digital and more climate-friendly economy. German Chancellor Angela Merkel expressed her relief, but also said that the internal market could continue to function in one of the Community's most serious crises. French President Emmanuel Macron spoke of a “historic moment“ for Europe.

On capital markets, the agreement in Brussels should support a cautiously positive sentiment. In Tokyo, the Nikkei index of 225 stocks is up +0.7% today, and on Wall Street, the broad S&P 500 index was also up +0.8% yesterday. After initial losses, the Euro Stoxx 50 recorded a daily gain of +0.68% at the start of the week. The euro climbed to around 1.1465 against the US dollar in the run-up to the EU unification, reaching its highest level in more than four months.

Investors' attention will now focus increasingly on the current quarterly reporting season of listed companies. Today, the focus will initially be on some Swiss blue chips, such as UBS and Novartis. Quarterly results from Roche and Daimler will follow on Thursday, and those of tech heavyweights Alphabet and Intel on Friday.

UBS beats market expectations despite profit decline

Against the backdrop of the pandemic, the major Swiss bank UBS earned less in the second quarter than in the previous year, but still managed to clearly exceed market expectations. On balance, the bank earned USD 1.23bn ­ a decline of -11% compared to the same period last year, but well above the consensus of USD 930m. Pre-tax profit fell to USD 1.58bn from USD 1.76bn last year (consensus USD 1.28bn). As in the previous quarter, UBS has to make further value adjustments of USD 272m due to the high level of uncertainty caused by the corona crisis. Net new money inflows developed positively. In Q2, the bank received a net inflow of USD 9bn in Global Wealth Management, compared with USD 12bn in Q1. According to Group CEO Sergio Ermotti, the results once again confirmed the strength, resilience and diversification of UBS's integrated business model. The outlook for the big bank was cautious.

IMF corrects growth forecast for US economy

The International Monetary Fund (IMF) assumes that economic output in the US will collapse by -6.6% in the current year due to the corona crisis. However, the IMF's assessment is more optimistic than the previous assumption of a GDP decline of -8%. The slightly more confident forecast is based on relatively solid private consumption, which has recently picked up again significantly.

Japan's core inflation holds the zero

After the Bank of Japan's particularly high core inflation rate in April and May was negative for the first time since 2016, the situation stabilized in June. In the midst of the corona crisis, core inflation at least climbed back to zero percent. Economists had expected a further decline. The general inflation rate in June was +0.1%, as in the previous month. Despite the extremely loose monetary policy, the 2% target set by the central bank remains out of reach and the pressure on consumer prices has been further intensified by the corona crisis.

Economic Indicators July 21

MEZ Country Indicator Last
08:00 CH Exports June (m/m) -0.2%
08:00 CH Imports June (m/m) +13.0%

Earnings Calendar July 21

Country Corporate Period
CH Novartis Q2
CH Givaudan H1
CH Lindt & Sprüngli H1
CH Kühne & Nagel H1
CH Georg Fischer  H1
US Philip Morris Q2




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Source: LGT Bank (Switzerland) Ltd.

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