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LGT Navigator: Coronavirus gnaws at nerves

November 18, 2021

Concerns about inflation, a foreseeable tightening of monetary policy, a gloomy economic outlook and, particularly, a renewed significant worsening of the pandemic situation are currently causing a cautious mood on the stock markets. In view of the dramatic increase in the number of infections and the still inadequate vaccination rate in many places, many European countries are forced to impose new measures, lockdowns, or entry restrictions. This is a scenario that was widely ruled out just a short time ago and, in the context of the fragile economic recovery and the explosive inflation risk, is a dangerous mix for investors.

Coronavirus gnaws at nerves

In Asia, the stock markets were mixed on Thursday. In Hong Kong, the Hang Seng index lost about -1.3%. The mood was depressed by concerns about the further earnings prospects of technology stocks and a slump in the heavyweight Alibaba by almost 5%. The negative guidance from overseas also weighed on the markets. Thus, the Dow Jones Industrial closed yesterday -0.58% lower at 35'931.05 points and the market-wide S&P 500 lost -0.26% to 4'688.67 points.

Eagerly awaited nomination at the helm of the Federal Reserve

US President Joe Biden could announce his choice for the next chair of the Federal Reserve later this week. Amid an extremely challenging environment due to the ongoing pandemic, impending monetary policy reversal, potentially overshooting inflation risk, and fragile economic recovery, filling the Federal Reserve's top job is of far-reaching consequence. The race is likely to be decided between acting Fed Chairman Jerome Powell and Fed Governor Lael Brainard. Brainard, an economist, is known for a dovish attitude and differs from Powell primarily in her tougher stance on banking regulation.

Inflationary pressure in the eurozone continues to rise

Consumer prices in the euro countries continued to rise in October. The annual inflation rate climbed from +3.4% in September to +4.1%. On a month-on-month basis, consumer prices in the euro zone rose by +0.8%. Core inflation, excluding the volatile prices for energy and food, alcohol, and tobacco, increased to +2.0% in October from +1.9% in the previous month. The European Central Bank (ECB) continues to expect inflationary pressures to ease again in the medium term. However, it may take longer than originally expected, ECB President Christine Lagarde admitted at last week's hearing before the EU Parliament's Economic and Monetary Affairs Committee.

Inflation in the UK reaches ten-year high

Consumer prices in the United Kingdom rose at their fastest rate in ten years in October. Over the year, the inflation rate was +4.2%, as reported by the ONS statistics office in London. This means that consumer prices have risen faster than analysts' average expectation of +3.9%. In September, the inflation rate was “only” +3.1%. Compared to the previous month, the cost of living increased sharply by +1.1%. Higher prices for transportation services as well as restaurants and hotels also had an impact. Against this background, a first interest rate hike by the Bank of England – most likely on December 16 – seems foreseeable.

German industry with full order books

Orders are piling up in the German industry. In September, for example, the order backlog reached a new record level, rising strongly by +2.4% compared with the previous month. This follows highs already registered in June, July, and August. The problem, however, is that new orders have outperformed sales in recent months, meaning that companies are unable to work off the new orders in view of supply chain problems.

Economic Indicators November 18

MEZ Country Indicator Last period
14:30 US Philly Fed Manufacturing Indicator (November) +24.2
14:30 US Initial Jobless Claims (weekly) 267,000
16:00 USA Leading Indicator (October, m/m) +0.2%


Earnings Calender November 18

Country Company Period
CN Alibaba Q2
SZ Holcim Capital Markets Day
SZ Zurich Insurance  Investor Day
GE Thyssen Krupp Year
ESP BBVA Investor Day
US Applied Materials Q4
US Macy's  Q3


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Source: LGT Bank (Switzerland) Ltd.

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