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LGT Navigator: Markets look ahead to post-Trump era

January 8, 2021

Following the turmoil in Washington triggered by US President Trump and the subsequent violent escalation in the US Parliament, the election results and thus President-elect Biden were officially certified by both chambers of Congress shortly thereafter. With nothing likely to stand in the way of Biden's inauguration, stock prices benefited from the improved visibility as well as Trump's promise of an orderly transfer of power.

Markets look ahead to post-Trump era

In the aftermath of the inglorious scenes in the US capital, President Donald Trump has at least shown a willingness to stop opposing the transfer of power to successor Joe Biden. Nevertheless, Trump reiterated that he did not agree with the outcome of the election. Shortly before, Congress had confirmed the election of Biden as the 46th president of the United States, clearing the way for the inauguration on January 20. Now that Democrats can more easily push through their policy agenda in the Senate as well, thanks to a runoff vote by Vice President-elect Kamala Harris, financial markets are hoping for even more extensive stimulus spending and increased investment in infrastructure. Although Trump appears to be striving for damage control, calls for impeachment are now growing louder shortly before the end of his term. Biden holds Trump directly responsible for the Capitol riots, and the top Democrats in Congress, Nancy Pelosi and Chuck Schumer, are calling for Trump's ouster based on Amendment 25 of the US Constitution. But this would have to be initiated by Vice President Mike Pence.

On the stock exchanges, the now clearer circumstances in US politics created a buying mood and on Wall Street, the record rally continued. All major indices of standard and technology stocks reached new highs on Thursday. The Dow Jones Industrial rose to a record 31'193 points in the course of trading and closed +0.69% higher at 31'041.13 points. The S&P 500 rose +1.48% to 3'803.79 points and the Nasdaq 100 posted a gain of +2.51% and exited the day's trading at 12'939.57 points. In Asia, most stock markets followed the positive cues from overseas this morning and made strong gains thanks to hopes for further US stimulus after the Democratic takeover of the Senate and US President Trump's promise of an orderly transition of power. Futures also signaled a positive start to trading for Europe's equity markets, while the yield on 10-year Treasuries climbed to its highest level since March.

The focus today is on the monthly US labor market statistics. Analysts expect a significant slowdown in job creation in the US economy in December.

US trade deficit at highest level in more than 14 years

The US foreign trade deficit reached USD 68.1bn in November, the highest level since August 2006. Economists had expected the deficit to increase to USD 67.3bn from USD 63.1bn in October. The key factor was a stronger-than-expected increase in imports, which rose by +2.9% over the month, while exports increased by +1.2%. The sharp increase in the trade deficit shows that the aggressive trade policy of the Trump administration has not led to the desired success and could well be questioned for the future orientation of the Biden administration towards China.

Coronavirus creeps back in China

China is currently experiencing its strongest outbreak of Covid-19 in months. After the People's Republic had the virus largely under control since the summer, infection figures have recently been on the rise again. The province of Hebei, north of the capital Beijing, is said to be particularly affected. Without further ado, a large part of the transport connections to the region were interrupted. Now the approximately eleven million inhabitants of the provincial capital Shijiazhuang are all to be tested. The regional outbreak is also sensitive because of the Chinese New Year, which begins on February 12.

ECB expects significant decline in economic output in the final quarter of 2020

In its economic bulletin published yesterday, the European Central Bank (ECB) expects a significant decline in economic output in the euro area at the end of last year in view of the ongoing corona pandemic. At least, however, the anticipated slowdown in the final quarter is expected to be clearly smaller than the massive slump in the second quarter of 2020. According to the ECB, the outlook for 2021 and beyond remains closely linked to the further course of the pandemic and the supply of Covid-19 vaccines. Meanwhile, at least general economic sentiment appears to have brightened somewhat toward the end of last year, despite increasing renewed pandemic-related constraints. The Economic Sentiment Indicator (ESI) published by the EU Commission improved by 2.7 points to 90.4 (consensus 89.8). While sentiment in the euro industry improved noticeably, the index value for the services sector remained at a low level.



Economic Indicators January 8

MEZ Country Indicator Last
07:45 SZ Unemployment Rate (December) 3.4%
08:00 GE Exports (November, m/m) +0.8%
08:00 GE Imports (November, m/m) +0.3%
08:45 FR Consumer Confidence (December)  +90.0
14:30 US Unemployment Rate (December) 6.7%
14:30 US Non-Farm Payrolls (December) +245,000
14:30 US Private Payrolls (December) +344,000

Earnings Calendar January 15

Country Corporate Period
US JPMorgan Chase Q4
US Citigroup  Q4
US Goldman Sachs Q4
US Alcoa


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