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LGT Navigator: Corona-clouded economic outlook dampens market sentiment

August 16, 2021

Although Japan's economy returned to growth in the second quarter, uncertainties surrounding the further development of the Covid-19 pandemic continue to weigh heavily on the economy. At the same time, weaker than expected economic data from China dampened stock market sentiment in Asia at the beginning of the week. Most likely, European stocks will open the new week also with a negative tone. On the New York Stock Exchange, a deterioration in consumer sentiment in the US had already caused the ongoing record chase to peter out.

Corona-clouded economic outlook dampens market sentiment

On Wall Street, the record chase stalled on Friday in the face of weaker than expected economic data. After the Dow Jones Industrial and the S&P 500 reached record values again at the start of trading, the indices lost momentum against the background of a clouding of consumer sentiment in the US. The Dow went into the weekend at 35'515.38 points (+0.04%), a gain of +0.87% for the week. The broad S&P 500 gained +0.16% to 4'468 points and the Nasdaq 100 ended Friday at 15'136.68 points (+0.32%). The stock markets in Asia opened the new week in negative territory for the most part, given a continued high level of uncertainty regarding the pandemic development and the economic recovery. In Tokyo, the Nikkei 225 index trades around -1.7% lower and in Hong Kong, the Hang Seng index loses around -0.7%.

In the new week, investors are likely to focus on some economic data that provide information on the economic development in the euro area (GDP Q2 eurozone on Tuesday) and consumer behavior in the US (retail sales also on Tuesday). New indications on central bank policy could be provided by the minutes of the last meeting of the Federal Reserve on Wednesday (FOMC Minutes) and the interest rate decision of the Norwegian central bank on Thursday.

Japanese economy grows slightly again in Q2, but remains in the shadow of the pandemic

The world's third-largest economy grew slightly for the first time in two quarters in the April-June period. Gross domestic product rose by +0.3% compared with the previous quarter, or +1.3% on an annualized basis, which was higher than experts had expected. Corporate investment spending made a positive contribution, while consumer spending remained weak in view of the continued focus on pandemic constraints. As a result, prospects for a robust recovery remain clouded. Currently, Covid-19 case rates in Japan are at a record high.

US consumer sentiment takes a surprisingly sharp turn for the worse

The latest survey results from the University of Michigan point to a surprisingly sharp deterioration in consumer sentiment in the US. The consumer confidence barometer fell from 81.2 to 70.2 points, with both components of the survey, the assessment of the current situation and the expectations of private households, deteriorating.

Global economy likely to remain on growth track despite delta variation according to Bloomberg survey

Global economic growth is expected to be around +1.8% in the third quarter and the inflation trend could peak in the meantime. This is the conclusion of a recent survey by Bloomberg. The recovery thus appears to be continuing, but a high degree of uncertainty remains regarding the spread of the delta variant. At present, however, the recovery of the global economy against the backdrop of the pandemic is uneven.

German wholesale prices show strongest increase in 47 years

In Germany, prices at wholesalers rose by +11.3% in July compared with the same year-on-year, thus recording the strongest increase since 1974! German wholesale prices had already risen by +10.7% in June and by +9.7% in May. On the one hand, the base effect due to the low-price level in the previous year in connection with the corona crisis is making itself felt, and on the other hand the rise in raw material prices. The price pressure is broadly based, ranging from raw and sawn timber (+60%) and petroleum products (+34%) to cereals, seeds and animal feed (+21%).

Inflation rate in France weakens in July, while climbing in Spain

In the second largest economy in the eurozone, inflationary pressure weakened in July. Thus, consumer prices rose by +1.5% on an annual basis compared with an inflation rate of +1.9% in June. On a monthly basis, the cost of living rose by +0.1% in July. Lower prices for clothing and shoes, for example, provided relief.

In Spain, however, the inflation rate continued to climb in July. Year-on-year, consumer prices rose by +2.9% on average (previous month +2.5%), reaching the highest level since the beginning of 2017. Among other things, prices rose for services and fuel as well as in restaurants and hotels.

 

Economic Indicators August 16

MEZ Country Indicator Last period
10:00 GE Bundesbank Monthly Report
14:30 US New York Fed Empire State Manufacturing Index (August) +43.0

 

Earnings Calender August 17

Country Company Period
SZ Swiss Life H1
US Walmart Q2
US Home Depot Q2
US Agilent Technologies Q2
AUS BHP Y

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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