Skip navigation Scroll to top
Scroll to top

LGT Navigator: Geopolitical tensions create additional nervousness

July 24, 2020

Following the closure of the Chinese consulate in Houston, Texas, ordered by the US government, China's leadership has now ordered the closure of the US consulate in Chengdu as a retaliatory measure. This is a further significant deterioration in the relationship, which has already been strained since the trade dispute and the outbreak of the corona pandemic. At the same time, the corona crisis in the US is also worsening and is the dominant issue in the current presidential election campaign. The stock market indices are currently also being burdened by profit-taking, especially in the technology sector.

Diversionary tactics in the US presidential campaign?

With the closure of the American consulate in the city of Chengdu in the southwest of the People's Republic, Beijing is reacting to the recent escalation from Washington and is thus further intensifying the tone in relations between the two  largest economies in the world. Meanwhile, US Secretary of State Mike Pompeo is pushing for more decisive action against China, emphasizing China's unfair trade practices and human rights violations.

On Wall Street, the Dow Jones Industrial fell by -1.31%, closing at 26 652.33 points. The broader S&P 500 fell by -1.23% to 3 235.66 points. In addition to the conflict between the US and China as well as negative data from the US labor market, profit taking in the technology sector was also a focus of attention. Even the better-than-expected quarterly reports from Microsoft and Intel did not help. The Nasdaq 100 lost -2.67% yesterday. Asia's stock markets joined the trend. In Tokyo, the Nikkei 225 Index lost -0.58% this morning.

Diversionary tactics in the US presidential campaign?

It is questionable to what extent the latest tensions have to do with the fact that US President Donald Trump is trying to divert the attention of the media and voters to a different topic because of the worsening pandemic situation in the US and the ongoing election campaign. In the United States, the number of Covid-19 cases rose to four million people, 140 000 of whom lost their lives. According to a recent report by Reuters, it took 98 days to reach the one million infection mark in the USA. Two million were recorded 43 days later and three million 27 days later. The four million mark has now fallen after only 16 more days. According to the latest poll results, US President Trump is clearly behind his challenger Joe Biden in three states known as “swing states“, which are considered decisive for the outcome of the presidential election. A poll by TV station Fox News puts the Democrats in Michigan ahead of Trump by nine percentage points. In Pennsylvania Biden seems to have a lead of around 10 percentage points and in Minnesota Trump is expected to win 38% and Biden 51%.

US labor market continues to send stress signals

The labor market remains under pressure due to the worsening corona situation in the United States. According to the latest data, 1.416 million people applied for unemployment benefits for the first time in the week ending July 18. In the weeks before, the at least moderate decline in applications had been at a high level. The first applications for unemployment assistance are considered an indicator of the current situation on the job market.

Consumer climate in Germany recovers thanks to VAT reduction

The reduction in value-added tax appears to be supporting consumption in Germany in the midst of the corona crisis. According to the latest survey by the Nuremberg-based research institute GfK, the private households surveyed intend to bring forward planned major purchases. Even if the effects are not sustainable, the reduction in VAT represents an important support for domestic demand in the current year, commented GfK. Irrespective of the tax effect, a recovery in the consumer climate is being observed, which, according to GfK, points to a V-shaped recovery in consumption. The consumer climate barometer calculated in the current survey improved from minus 9.4 points to minus 0.3 points for August. The indicator had reached its lowest point in May with minus 23 points as a result of the lockdown. The longer-term mean value is around plus 10 points.

French company more confident again

The mood in the French economy has recovered somewhat thanks to the slow opening of the economy after the corona shock. The business climate index compiled by the national statistics office Insee rose by seven points to 85 points in July. The mood in both the industrial and service sectors brightened. Due to the corona crisis, the authority is currently expecting a slump in gross domestic product of around -9% in the current year.

Economic Indicators July 24

MEZ Country Indicator Last
10:30 UK Retail Sales June (y/y) -13.1%

Earnings Calendar July 24

Country Corporate Period
CH Lonza H1
CH Schindler H1
CH Sulzer H1
FR LVMH H1
UK Tullow Oil H1
US Alphabet Q2
US Verizon Q2
US Nextera Q2
US Schlumberger Q2

 

 

 

LGT helps you make informed investment decisions

All about global economic and market trends at a glance

Subscribe to LGT's research newsletters

Follow us on TwitterFacebook or LinkedIn, where we inform you about latest market developments and LGT News. Further informationen is available on: LGT Social Media.

Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 83 48, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

Risk Disclosure (Disclaimer)
This publication is an advertising material / marketing communication. This publication is for your information only and is not intended as an offer, solicitation of an offer, or public advertisement to buy or sell any investment or other specific product. Its content has been prepared by our staff and is based on sources of information we consider to be reliable. However, we cannot provide any confirmation or guarantee as to its being correct, complete and up to date. The circumstances and principles to which the information contained in this publication relates may change at any time. Information that has been published should therefore not be understood as implying that no change has taken place since its publication or that it is still up to date. The information in this publication does not constitute an aid for decision-making in relation to financial, legal, tax-related or other consulting matters, nor should any investment decisions or other decisions be made on the basis of this information alone. It is recommended that advice be obtained from a qualified expert. Investors should be aware that the value of investments can fall as well as rise. Positive performance in the past is therefore no guarantee of positive performance in the future. Investments in foreign currencies are also subject to fluctuations in exchange rates. We disclaim all liability for any loss or damage of any kind, whether direct, indirect or consequential, which may be incurred through the use of this publication. This publication is not intended for persons subject to legislation that prohibits its distribution or makes its distribution contingent upon an approval. Any person coming into possession of this publication shall therefore be obliged to find out about any restrictions that may apply and to comply with them. In line with internal guidelines, persons responsible for compiling this report are free to buy hold and sell the securities referred to in this report.

US employment growth remains dynamic at the beginning of the year