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LGT Navigator: Losing streak on Wall Street temporarily stopped

May 21, 2021

Signs of recovery on the American labor market are driving gains on stock markets. Meanwhile, the US government is pushing ahead with discussions on a minimum tax rate for international companies. Italy is planning another stimulus package and the German economy is benefiting from high export activity.

Bull and Baer

Stock exchanges on Wall Street have gained significantly on Thursday after three consecutive days of losses. The S&P 500 advanced +1.1% to 4159.12 points and the Dow Jones gained +0.6% to 34'084.15 points. The technology index Nasdaq 100 rose +1.9% to 13'494.09 points. After a subdued start to trading, surprisingly good data from the US labor market provided a good mood on the markets. 

The Asian stock markets are once again trading inconsistently. While the Nikkei gains +0.8% in Tokyo, the Hang Seng Index (-0.2%) and the Shanghai Composite (-0.5%) lose ground.

Meanwhile, the US government is pushing ahead with discussions on a global minimum tax rate for internationally active corporations. In negotiations within the Organization for Economic Cooperation and Development (OECD), it has proposed a tax rate of at least 15%, according to the US Treasury Department. Treasury Secretary Janet Yellen already advocated the introduction of a minimum tax in April in order to stop the global race to the lowest tax rate.

Signs of recovery on the US labor market

Initial jobless claims in the US have fallen to their lowest level since the outbreak of the corona pandemic. As of the end of last week, 440 000 Americans filed for unemployment for the first time, the lowest number since mid-March 2020. Despite the decline, the numbers are still well above the levels measured before the outbreak of the pandemic, which averaged 218 000 in 2019. The numbers followed the April labor market report, which was much worse than expected and fueled speculation that higher unemployment contributions during the pandemic had discouraged people from seeking jobs. Now, numerous states are planning to eliminate those extra funds early. These include for example weekly payments of USD 300 per person, which were originally planned to last until September and will now be stopped as early as June or July.

Weak American industrial indicators

Business confidence in Greater Philadelphia deteriorated more than expected in May. The Philly Fed index, which measures industrial activity in the region, fell 18.7 points to 31.5, the Federal Reserve Bank of Philadelphia said Thursday. Analysts had expected only a decline to 41.5 points. A reading above zero indicates an expansion in manufacturing activity, while a reading below zero signals a decline. This week, the Empire State index, which tracks industrial activity in New York, has already fallen more than expected. The regional indexes are considered leading indicators of the nationwide economic activity. 

Italy plans further economic measures

The Italian government put together another economic stimulus package to cushion the impact of the corona pandemic. Foreign Minister Luigi Di Maio made the announcement on Facebook on Thursday. According to the statement, a total of EUR 40 billion will be provided to support businesses and the labor market, extend emergency incomes, finance tax breaks and prop up tourism. The package still needs to be approved by parliament. In January, the government already approved measures worth EUR 32 billion to boost the economy. 

Exports support German economy

The German economy contracted by -1.7% at the start of the year compared with the previous quarter, according to an initial estimate by the Statistical Office. The fact that the decline was not even more pronounced is due to strong exports. Thus, German companies exported more goods in March than ever before in a single month, despite the more difficult circumstances caused by supply bottlenecks in the automotive sector, for example. A look back shows that exports were almost at the level of the final quarter of 2019, before the corona crisis started. Based on the high level of export activity, statisticians are also confident that the economic upswing is likely to continue. 

The International Monetary Fund (IMF) is also optimistic about the economic outlook for Germany. It expects gross domestic product (GDP) to return to pre-crisis levels at the beginning of 2022. For the current year, the IMF forecasts GDP growth of +3.6%. However, the economists have stressed that the prerequisite for the recovery is further progress in the vaccination campaign. They also warned against prematurely scaling back support programs for the economy and the labor market.



Economic Indicators May 21

MEZ Country Indicator Last period
10:00 EZ Purchasing manager index (May) +53.8
15:45 US Purchasing manager index (May) +63.5
16:00 US Existing home sales (April, m/m) -3.7%


Earnings Calender May 21

Country Company Period
CH Richemont Q4
US Deere & Co. Q2


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