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LGT Navigator: Uncertainties and gold rush mentality increase volatility

January 27, 2021

After investors got cold feet in midweek in the face of high valuations and a persistently tense pandemic situation, most stock market indices were able to recover somewhat yesterday. In addition to positive impulses from some corporate results, partially optimistic signals from US economic data also provided renewed optimism. Nevertheless, the uncertainties surrounding the pandemic and the problems with vaccine distribution, and in particular the speculative turbulence and gold-rush sentiment surrounding Gamestop shares, appear to be increasing volatility on the stock markets ahead of the end of the week. 

Uncertainties and gold rush mentality increase volatility

The situation on international stock markets eased somewhat on Thursday after the slump the previous day. On US stock markets, better-than-expected data from the labor market and some good corporate results, such as from Mastercard, provided positive impetus. The Dow Jones Industrial gained more than +2% in the meantime and closed at 30'603.36 points +0.99% higher. The S&P 500 ended trading with a daily gain of +0.98% at 3'787.38 points. Still, the turbulence in the shares of the video game retailer Gamestop and other companies provide nervousness. Meanwhile, the US Securities and Exchange Commission and the Treasury Department has intervened. On the stock exchanges in Asia, however, the market sentiment has already clouded again and many stock indices show partly heavy daily losses at the end of the week. Reports of liquidity shortages in China are also causing unease after Chinese money market rates climbed to their highest level in almost six years, reflecting tight liquidity in the financial system. Equity futures are also signaling a weak start to trading for Europe's stock markets. The focus today will be on preliminary GDP figures from Germany, France and Spain.

Outlook in the US appears to be brightening somewhat after an “annus horribilis“

Economic output in the United States fell by -3.5% in 2020 as a whole, the weakest performance since 1946. In the final quarter, the world's largest gross domestic product still expanded at an annualized rate of +4.0% (analyst consensus +4.2%), which means that growth weakened noticeably compared with the previous quarter. In the third quarter, the US economy had grown by a record annualized +33.4% thanks to the catch-up effect from the pandemic-related slump.

At the same time, however, it was reported that the composite index of leading economic indicators of the US economy increased by +0.3% in December from the previous month. The indicator, which is compiled monthly by the New York-based economic research institute The Conference Board and is made up of ten forward-looking economic data points, thus provided a confident signal with regard to economic development over the next six months or so.

There was also positive news from the US labor market. In the week ending January 23, 847'000 initial claims for unemployment insurance were filed, 67'000 fewer than in the previous week.  Analysts had expected an average of 875'000 claims. Initial claims provide an indication of short-term developments in the US labor market. Before the corona crisis, applications averaged around 200'000 per week.

Economic sentiment in the eurozone clouds over at the beginning of the year

According to the latest survey results from the EU Commission, general economic sentiment in the euro-area has deteriorated at the start of the year. The Economic Sentiment Indicator (ESI) fell by 0.9 points compared with December to 91.5 points. However, analysts had expected an even sharper decline to 89.6 points. According to the executive authority in Brussels, developments in January were mixed across economic sectors and member countries. In the major euro countries, sentiment improved in Italy, Spain and the Netherlands, for example, while it deteriorated in Germany and France.



Economic Indicators January 29

MEZ Country Indicator Last
07:30 FR GDP Q4 (q/q) +18.7%
07:30 FR Consumer Spending (December, m/m) -18.9%
09:00 SZ KOF Leading Indicator (January) 104.3
09:00 SP Consumer Prices (December, y/y) -0.6%
10:00 GE GDP Q4 (q/q) +8.5%
10:00 GE Unemployment Rate (January) 6.1%
14:30 US Personal Income (December, m/m) -1.1%
14:30 US Personal Spendcing (December, m/m) -0.4%
16:00 US Consumer Confidence University Michigan (January) 79.2
16:00 US Pending Home Sales (December, m/m) -2.6%

Earnings Calendar January 29

Country Corporate Period
SZ Givaudan Q4
US Eli Lilly Q4
US Caterpillar Q4
US Chevron Q4
US Colgate-Palmolive Q4


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US employment growth remains dynamic at the beginning of the year