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LGT Navigator: Geopolitical easing provides tailwind on the stock markets

January 10, 2020

The US government's moderate reaction to Iran's missile attacks on US troops brought relief on the capital markets and maintains the hope that the conflict parties are interested in avoiding an escalation. In addition to the US labor market report due today, the trade dispute is likely to return to center stage when a partial agreement is signed next week.

Stock exchanges

The immediate danger of further escalation in the Middle East seems to have been averted for the time being. In response to the Iranian attacks, the US government “only” announced new economic sanctions against Tehran, but not, as feared, a military response. At the end of the week, the financial markets are now focusing on the monthly US labor market statistics. Analysts expect a lower job growth of 165,000 non-farm payrolls in December after 266,000 new jobs were created in the previous month according to initial data. Meanwhile, China's Vice Premier Liu He is expected to sign a first trade agreement with the US next week in Washington, the Commerce Ministry in Beijing confirmed. The “Phase 1 deal” is to include the reduction of punitive tariffs and China's promise to import more agricultural products from the US. President Donald Trump stressed yesterday that he wants to start negotiations with China on a “Phase II” trade agreement immediately.

World Bank cuts economic forecasts

The World Bank lowered its forecasts for global economic growth. For 2019 and 2020, the Washington-based institution anticipates global growth of +2.4% compared with the previous forecast of +2.6%. In the current year, it is still expecting an expansion of +2.5% (previously +2.7%). The background is the weaker-than-expected recovery in trade and investment in the face of continuing uncertainties and international tensions.

Bank of England holds out prospect of monetary easing

In a speech yesterday, Mark Carney, the head of the British central bank, who will leave office on 15 March, held out the prospect of an early cut in interest rates in order to cushion the negative consequences of the imminent breakout. Since the room for manoeuvre with regard to the key rate – currently at +0.75% – is relatively limited, the central bank could also revert to buying securities, said Carney. Already at the last interest rate decisions, two of the nine members of the Central Bank's Monetary Policy Council voted in favor of interest rate easing. The next interest rate decision is due on 30 January, i.e. one day before the probable Brexit date. After Carney's statements, the pound Sterling lost around half a percent against the US dollar.

British Parliament gives green light

More than three years after the Brexit referendum, the British House of Commons has approved the Brexit treaty negotiated with the EU. In the vote, 330 members of parliament voted for the bill and 231 against it. Great Britain is now expected to leave the EU on 31 January. The focus is now already on negotiations on future relations after a transitional period until the end of 2020.

Record low unemployment rate in the euro zone

In the euro zone, the unemployment rate remained at its lowest level for more than eleven years despite the gloomy economic outlook. According to the statistics office Eurostat, the unemployment rate lay at 7.5% in November. A total of 12.32 million people were without permanent employment, 624,000 fewer than in the same period last year. The lowest unemployment rate was observed in Germany at 3.1%. The highest rate was recorded in Greece with 16.8%.

Weak German export data

German exports in November fell surprisingly sharply by -2.3% compared with the previous month. At the same time, imports fell by -0.5% month-on-month. In the eleven months from January to November, exports thus rose by only +0.7% to EUR 1,229.6bn, a clear sign that the trade conflict and weaker growth in China are leaving their mark on the German balance of trade.

Tesla – impressive market capitalization

Tesla's market capitalization exceeded the combined market capitalization of the two largest American car manufacturers, General Motors and Ford, after a price increase of around +5% at midweek. The Californian electric car maker's stock climbed to a record high on Wednesday, driven by a surprisingly strong Q3 profit and promising delivery figures, taking its market value to around USD 89bn, about two billion more than GM and Ford combined.



Economic Indicators January 10

MEZ Country Indicator Last
08:30 FR Business Climate 97.4
08:45 FR Industrial Production (y/y) -0.2%
09:00 SP Industrial Production (y/y) +1.1%
10:00 IT Industrial Production (y/y) -2.4%
14:30 US Unemployment Rate 3.5%
14:30 US Non-Farm Payrolls 266,000
14:30 US Private Payrolls 254,000
14:30 US Average Hourly Earnings (y/y) +3.1%

Earnings Calendar January 14

Country Corporate Period
US JPMorgan Chase Q4
US Citigroup Q4



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