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LGT Navigator: Investor sentiment remains tense – waiting for new impetus

September 7, 2020

Global stock markets seem to be largely stabilizing on Monday, after the sharp slide in technology stocks. However, investor sentiment remains tense and volatility has increased. In Asia, stock markets started the new week mostly on the defensive. As US capital markets remain closed today for the Labor Day holiday, investors are awaiting new impulses. The interest rate decision of the European Central Bank on Thursday and the resumed Brexit negotiations between London and Brussels are now moving into the center of attention.

Investor sentiment remains tense – waiting for new impetus

Trading on the New York Stock Exchange on Friday was dominated on the one hand by the latest data from the US labor market, which gives rise to hopes for a further, albeit tough, recovery, and on the other hand by continued profit-taking by technology stocks before the long holiday weekend (Labor Day). At the beginning of the week, Asian equity markets followed the negative trend in the US and are mostly trading down. After a significant decline on Friday, the Japanese leading index Nikkei 225 again showed a negative trend at the beginning of the week, declining by -0.41% to 23 106.6 points. The latest economic data from China provided some support. China's exports continued to recover in August despite the ongoing corona pandemic. Compared to the previous year (in US dollars), exports increased by +9.5% more than expected. Imports, on the other hand, fell by -2.1%. In net terms, China's foreign trade thus recorded a plus of +4.2%.

On Wall Street, investors' nerves were once again put to the test. While the tough but ongoing recovery on the American labor market brightened the economic outlook somewhat in the midst of the corona pandemic, further profit-taking before the long weekend caused by the holiday season, particularly in the case of the hotly coveted technology stocks, ensured a negative weekly close. The Dow Jones Industrial closed Friday -0.56% lower at 28 133.31 points, posting a weekly loss of -1.8%. The broad-based S&P 500 dropped -0.8% to 3 426.96 points and the Nasdaq 100 fell -1.27% to 11 622.13 points, meaning that the technology-driven stock market barometer recorded a weekly loss of around -3%.

Recovery in US labor market continues, but at a slower pace

In the United States, 1.371 million new jobs were created in August. Although the recovery is continuing, less than half of the 22 million jobs lost in March and April have been regained, despite the strong growth in recent months. At the same time, the unemployment rate fell for the fourth month in a row to 8.4% from 10.2% in the previous month. Analysts had expected a decline to 9.8%. In April, during the lockdown, the unemployment rate reached 14.7%, the highest level since records began after World War II. Whether the recovery on the American labor market will be sustainable remains in the stars, given the still highly uncertain pandemic situation. In addition, industries that have already been severely affected, such as various airlines, have announced major job cuts. Developments on the labor market are likely to be a decisive factor in the current race for the White House.

Dollar weakness causes concern at ECB

According to a report in the British business newspaper Financial Times, the European Central Bank (ECB) is concerned regarding the weakness of the US dollar or the appreciation of the euro, respectively. If the trend continues, pressure on the ECB to ease its monetary policy even further will increase and the strong euro will dampen the economic outlook for the euro zone. The ECB will discuss its further monetary policy orientation on this coming Thursday. The euro has gained around ten cents against the greenback since May. Sentiment for the US dollar is burdened above all by US key interest rates, which are likely to remain at their lowest level for some time to come since the Fed's recent strategy adjustment.

German industry's catch-up process has slowed down somewhat

The catching-up process in terms of incoming orders in German industry continued at a slower pace in July following the upturn in May and the strong recovery in June. Compared to the previous month, industry collected +2.8% more orders. Analysts had expected an average increase of +5%. However, this moderate increase follows the strong rise of almost +30% in June as a counter-reaction to the previous slump during the lockdown. For the year as a whole, incoming orders in July were -7.3% lower. However, declining short-time work figures and improved business expectations of companies would indicate that the catch-up process will continue in the coming months, the Federal Ministry of Economics commented.



Economic Indicators September 7

MEZ Country Indicator Last
08:00 GE Industrial Production (July, y/y) -11.7%
10:30 EZ Sentix Investor Confidence (September) -13.4%

Earnings Calendar September 13

Country Corporate Period
US Oracle Q1


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Source: LGT Bank (Switzerland) Ltd.

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US employment growth remains dynamic at the beginning of the year