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LGT Navigator: Short-term stabilization, but market environment remains fragile

September 25, 2020

On equity markets, prices seem to be stabilizing again after the recent losses. However, concerns about the further course of the corona pandemic and the associated fears of another slump, particularly in the US and European economies, continue to create an extremely fragile market environment. Against this background, the central banks are sticking to their extremely expansive monetary policy, as the Swiss National Bank (SNB) confirmed yesterday.

Short-term stabilization ­ but market environment remains fragile

The situation on the stock markets appears to be calming down again, after the slump in prices in the middle of the week. Although the Dow Jones Industrial climbed above the 27 000 mark in the course of trading, it then fell back again and closed with a moderate daily gain of +0.2% at 26 015.61 points. The latest data from the US labor market did not provide any relief. Last week, 870 000 people applied for unemployment benefits for the first time, significantly more than analysts had predicted at 840 000. The number of initial jobless claims thus remains around four times as high as at the beginning of the year. The S&P 500 then closed virtually unchanged from the previous day (+0.02%). The Nasdaq 100 technology stock market barometer rose by +0.58% after the heavy loss of the previous day. In Asia, most of the stock indices followed the friendly lead of Wall Street. In Tokyo, the Nikkei index, which comprises 225 stocks, rose by around half a percent.

Ifo-Index signals continued recovery of the business climate in Germany

The much-noticed company survey conducted by the Munich-based Ifo Institute improved in September for the fifth month in a row, pointing to a sustained recovery from the corona shock. The business climate barometer climbed from 92.5 points in August to 93.4 points, the highest level since February. The assessment of the current situation and the outlook of the approximately 8 000 companies surveyed improved. However, the situation appears to remain tense in the service sector, where business expectations clouded over again in September. Overall, the German economy is stabilizing despite rising infection figures, the Ifo Institute commented.

ECB monthly report: fragile economic recovery

Although current economic data point to a strong recovery of the economy from the corona shock, there has been a noticeable loss of momentum, particularly in the service sector. The uncertainty is dampening consumer spending and corporate investment. In its economic report published yesterday, the ECB stated that it was still very uncertain how strong the economic recovery would be and still depended heavily on the further course of the pandemic and the success of the containment measures.

SNB remains on its well-established course

As expected, the Swiss National Bank (SNB) confirmed its negative interest rate policy and emphasized that it would continue to be active on the foreign exchange market if the franc appreciated as a result of the uncertainties in the corona crisis. The key interest rate thus remains at -0.75%. The SNB stated that the continued expansive monetary policy is necessary to ensure appropriate monetary conditions in Switzerland and to stabilize economic and price developments. In its economic assessment, the central bank is confident that the Covid-19 pandemic can be kept under control without a renewed severe impact on the global economy. The SNB expects economic output to decline by -5% in the current year. The inflation rate is likely to be -0.6% and then turn slightly positive again next year at +0.1%.

Turkish central bank surprises the markets

Turkey's central bank unexpectedly raised its key interest rate by 200 basis points to 10.25% yesterday. Economists had expected an unchanged interest rate level. Background is also the Turkish lira which is under strong downward pressure. Most recently, the currency had fallen to record lows against the euro and the US dollar. In addition, the annual inflation rate is currently quoted at almost 12%.

 

Economic Indicators September 25

MEZ Country Indicator Last
10:00 IT Economic Sentiment (September) 80.8
14:30 US Durable Goods Orders (August, m/m) +11.4%

Earnings Calendar October 6

Country Corporate Period
SZ Aryzta Y

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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