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LGT Navigator: Economic worries catch up with stock markets

August 21, 2020

A cautious outlook from the US Federal Reserve and weaker than expected US economic data increased investors' risk aversion and caused a setback for the so far positive tone on most stock markets. It also remains unclear whether Washington will reach a compromise in the dispute over the corona aid package and how the trade talks between the US and China will develop.

Economic worries catch up with stock markets

In New York, the rally in technology stocks continued, spurred by record highs at Apple and Tesla, but the Dow Jones and the broad S&P 500 Index only posted moderate daily gains of +0.17% (27 739.73 points) and +0.32% (3 385.51 points), respectively, in view of weaker than expected US economic data. In Asia, most stock markets showed a cautiously positive fundamental tone at the end of the week. In Tokyo, the Nikkei 225 Index is trading at 22 965.96 (+0.37%).

Tough recovery in the US labor market

The number of applications for unemployment benefits in the United States rose again to over one million. Last week, 1.1 million people applied for government assistance. The week before, the figures had fallen below the million mark for the first time since the outbreak of the corona pandemic. Overall, the situation on the American job market is improving steadily, but the recovery is progressing only slowly. Almost 15 million Americans are currently receiving unemployment benefits. That is significantly less than at the beginning of May (25 million), but still massively more than in February (around 2 million). In the past three months, the US economy has created nearly 10 million jobs, but about twice as many jobs were lost during the crisis.

US industrial indicator deteriorates again

The Philly Fed index, one of the most important leading indicators for US production, weakened again in August. The monthly barometer compiled by the Federal Reserve of Philadelphia fell from plus 24.1 points in July to plus 17.2 points. Analysts had expected a more moderate weakening to 20 points. However, a value of over zero points expresses a continued positive economic assessment by the companies surveyed. The index was negatively influenced above all by a deterioration in the employment situation in the economic northeastern region.

Talks between Washington and Beijing "in the near future"

The negotiations between the trade delegations of the US and China are to be resumed soon, at least by telephone. Both parties seem to be playing for time with this for the time being. In the middle of the week, the Americans had cancelled planned talks to review the Phase-1 trade agreement reached in January. In the partial agreement Beijing had promised a significant increase in imports from the US. According to analysts, however, the Chinese have so far failed to meet the agreed targets. Relations between the two countries also remain tense due to the corona pandemic and the conflict over the Chinese telecommunications giant Huawei and the well-known social media app TikTok.

Biden officially nominated as challenger to Trump

At the end of the US Democratic Party Conference, 77-year-old Joe Biden accepted the nomination as presidential candidate, challenging incumbent Donald Trump (74) on 3rd November. In his speech, Biden said the US must "overcome the time of darkness together". As priorities, Biden and vice presidential candidate Kamala Harris (55) promised to reunite the country, tackle the corona crisis and prepare the US for future pandemics, create millions of jobs, confront racial injustice and take decisive action against the climate crisis.

ECB sees continuing high uncertainties

In its minutes of the monetary policy decision of July 16 published yesterday, the European Central Bank (ECB) stressed the continuing high level of uncertainty with regard to economic, price and pandemic developments. The ECB sees its Emergency Bond Purchase Program (PEPP) for the management of the corona pandemic as a key element and could possibly increase it further. The Governing Council would review the appropriateness of monetary policy at its next meeting on September 10.



Economic Indicators August 21

MEZ Country Indicator Last
16:00 US Existing Home Sales (July, m/m) +20.7%
16:00 US Existing Home Sales (July, y/y) +4.7%

Earnings Calendar August 21

Country Corporate Period
US Deere Q3


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