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LGT Navigator: Investors shift down one gear

November 18, 2020

Following the record highs posted on Wall Street at the beginning of the week on positive news regarding a Covid-19 vaccine, investors shifted down a gear yesterday. In addition, worries about the progress of the pandemic and the effects of the renewed lockdowns in Europe, as well as weaker-than-expected US consumption data, are once again weighing on sentiment.

Investors shift down one gear

Against the backdrop of disappointing US retail sales, the still tense pandemic situation and its negative impact on economic recovery, the stock indices on the New York Stock Exchange fell yesterday after the previous record hunt. The Dow Jones Industrial closed -0.56% lower at 29 783.35 points. The S&P 500 also fell -0.48% to 3 609.53 points from the daily trading range. Meanwhile, Federal Reserve Chairman Jerome Powell again pressed for increased fiscal and monetary support for the economy. At the same time, Nancy Pelosi, the speaker of the House of Representatives, and Chuck Schumer, the Democratic caucus leader in the Senate, called on the Republican majority leader to resume negotiations on the stimulus package. 

In Asia, most stock exchanges followed the lead from overseas and traded lower this morning. In Tokyo, the Nikkei index, which comprises 225 stocks, lost around -1%. The latest data on Japan's foreign trade did not provide any positive impetus. Although Japanese exports fell by -0.2% in October compared with the same period last year, the decline was much more moderate than economists had expected at -4.5%. In September, exports had still slumped by almost -5%. On the other hand, imports to Japan in October fell by -13.3% for the year as a whole, which was stronger than anticipated.

Recovery in US consumption shows signs of weakness 

The American retail sector recorded only weak sales growth in October, which means that the recovery from the corona-related sales slump seems to be weakening again. In October, retailers reported +0.3% more sales than in the previous month, as reported by the Department of Commerce in Washington. Analysts had predicted a stronger sales increase of +0.5%, following solid growth of +1.6% in September. Consumers appear to be acting more cautiously in view of the ongoing corona crisis with economic restrictions, the difficult situation on the labor market and the still unclear starting position of the US elections in October. Moreover, politicians in Washington were not able to put together another economic stimulus package in order to relieve the burden on private households during the crisis.

By contrast, the US industry proved to be in relatively robust shape in October despite the ongoing corona crisis. Last month, companies increased their production more strongly than expected by +1.1% compared with the previous month (consensus +1.0%), after a decline of -0.4% was recorded in September.

Brexit negotiations on the verge of a breakthrough?

While talks on future trade and security relations between the UK and the European Union continue in Brussels, the two parties may be close to a breakthrough, according to Bloomberg. Meanwhile, British Prime Minister Boris Johnson has been pressing for a deal, saying that it is far from certain that an agreement will be possible and that time is running out. He said Britain was keen to reach an agreement with the EU, but not at the expense of core principles of sovereignty, in particular control over laws, borders, finance and fisheries. EU chief negotiator Michel Barnier is scheduled to meet with the 27 national ambassadors of the EU on Friday to brief them on progress.



Economic Indicators November 18

MEZ Country Indicator Last
08:00 UK Consumer Prices (October, y/y) +0.5%
08:00 UK Core Consumer Prices (October, y/y) +1.3%
11:00 EZ Consumer Prices (October, y/y) -0.3%
14:30 US Housing Starts (October, m/m) +1.9%
14:30 US Building Permits (October, m/m) +4.7%

Earnings Calendar November 24

Country Corporate Period
UK Compass Group Y
IE Medtronic Q2


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