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LGT Navigator: Investors do not trust their optimism

June 25, 2020

Investors do not seem to trust their own confidence and so the international stock markets went down again in the middle of the week. Caught between hopes of an economic recovery and fears of renewed lockdowns due to a second wave of the pandemic, stock market sentiment remains fragile and the mood fluctuates between optimism and pessimism. While the Ifo survey showed a much more confident assessment of companies, the IMF again lowered its growth forecasts for the global economy.

Investors mistrust their optimism

The Dow Jones Industrial posted a daily loss of -2.72% yesterday, closing at 25 445.94 points and the recent record hunt on the Nasdaq also came to a temporary end: the Nasdaq 100 fell by -2.03% to 10 002.69 points. The S&P 500 fell by -2.64% to 3 050.33 points. In Asia the trend continued and in Tokyo the Nikkei 225 decreased by -1.22% to 22 260.20 points. In Hong Kong and mainland China, stock exchanges remained closed today due to a public holiday.

Corporate sentiment is recovering faster than expected

According to the latest survey results of the Munich-based economic research institute Ifo, the mood of German companies brightened significantly in June. After a historic low in April, the much-noticed business climate barometer recovered further from 79.7 points in May to 86.2 points. According to Ifo, the recovery in June was also the strongest ever measured increase. For the first time since the beginning of the corona crisis, the companies surveyed also assessed the current situation more optimistically - both in the industrial sector and in the service sector. Ifo President Clemens Fuest summarized: The German economy sees light at the end of the tunnel.

In France, too, corporate sentiment in June has clearly recovered from the slump during the lockdown phase. The French business climate index climbed from 59.9 to 77.8 points. This is also the strongest rise ever measured since the start of the data series in 1980.

IMF's assessment of the corona crisis even more pessimistic

According to the International Monetary Fund (IMF), the effects of the coronavirus pandemic and the associated economic damage are likely to be even more serious than previously assumed. The slump in the global economy will therefore be much more severe than expected in the current year. Accordingly, in its revised growth forecast the Washington-based institution assumes that the global economy will contract by -4.9%. In April the forecast was still -3.0%. On the other hand, however, the IMF also anticipates a brilliant recovery next year, albeit not quite as strong as previously assumed, with global economic growth of +5.4% (previous forecast +5.9%).

Recovery of the US economy likely to take a long time

The president of the Chicago Fed, Charles Evans, believes that a full recovery of the US economy from the recession following the corona pandemic will take several years. He does not expect the economy to reach pre-crisis levels until the end of 2022.

Bond purchases more effective than interest rate cuts

According to Philip Lane, Chief Economist of the European Central Bank (ECB), the central bank's bond purchase program is a more effective instrument than interest rate cuts in the current crisis environment. According to Lane, yields on long-term government bonds would react practically not at all to interest rate cuts in phases of market stress, as was shown before the start of the pandemic purchasing program PEPP. Measures directly targeting government bond yields are more effective because they reduce the relevant spreads in this market segment.

Green light for Lufthansa rescue?

At today's Annual General Meeting of Deutsche Lufthansa, a decision is to be made on the billion-euro government financial package. The main bone of contention was the future right of the state to have a say. Major shareholder Heinz Hermann Thiele, in particular, was opposed. But now Thiele is said to be willing to give the green light despite his reservations. Thiele had sharply criticized the negotiated rescue plan with a state share of 20% in Lufthansa. With a share of 15.5% he could have brought the plan down. Today's decision is also of existential importance for Swiss.

Bayer achieves billion-dollar settlement in glyphosate case

According to Reuters, the German pharmaceutical and agrochemical group Bayer has reached an agreement with a large part of the plaintiffs to pay USD 11bn, thus freeing itself from a big part of the legacy liabilities from the Monsanto takeover.

Economic Indicators June 25

MEZ Country Indicator Last
08:00 GE GfK Consumer Climate Index July -18.9
14:30 US GDP Q1 Revision (q/q annualized) -5.0%
14:30 US Personal Consumption May (q/q) -6.8%
14:30 US Initial Jobless Claims (as of June 20) 1.508m
14:30 US Durable Goods Orders May (m/m) -17.7%

Earnings Calendar June 25

Country Corporate Period
US Nike Q4

 

 

 

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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.

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