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LGT Navigator: US labor market remains solid and supports Fed policy

November 4, 2019

The job engine of the US economy is still booming and the American industrial sector, which is suffering particularly from the trade conflict, showed signs of stabilization. This should confirm the Fed's view, despite the US President's continued criticism. In addition, the US government signaled optimism regarding the trade dispute. As a result, some Wall Street indices climbed to new record highs. In Asia, the stock markets followed the positive lead, with Tokyo not trading due to a public holiday.

Wall Street

In October more new jobs were created in the US economy than economists had expected. Employment rose by +128.000 jobs compared with the previous month, more than the consensus forecast of +85.000 had predicted. In addition, a revised +180.000 new jobs were created in the previous month, significantly more than originally estimated at +136.000. The unemployment rate determined in a separate study climbed from 3.5% – the lowest level in 50 years – to 3.6%. A further positive sign was provided by the highly regarded ISM Purchasing Managers' Index for the industrial sector. At 48.3 points, the barometer remains clearly below the 50 threshold, which signals growth in the sector, but the PMI improved at least from the ten-year low of 47.8 points recorded in the previous month. US Federal Reserve Chairman Jerome Powell is likely to feel strengthened by the still solid US labor market data in the interest rate pause announced last week.

Still, Trump demands negative interest rates

US President Donald Trump once again attacked Federal Reserve Chairman Powell and accused the Fed of putting the US at a disadvantage in competition with other major economic powers. "We should have lower interest rates than Germany, Japan and everyone else," Trump twittered. "China is not the problem, it is the Fed". Trump had already repeatedly called for more drastic rate cuts in order to drive the domestic economy. Only last week the Fed lowered its key rate for the third time in a row to a range of 1.5% to 1.75%.

Washington signals optimism in trade talks

Larry Kudlow, chief economic advisor to US President Trump, sees a good chance of a settlement in the trade dispute with China. The talks are going "very optimistically". The parties to the conflict were almost unanimous on the issue of agricultural products and progress had been made on the financial services and currencies dossiers. The negotiations also went well in the intellectual property dispute, but there was still no consensus, Kudlow confirmed.

Focus of earnings season shifts to Europe

After most American stock market heavyweights have published their quarterly reports, the corporate reporting season in Europe is picking up speed this week. For example, with quarterly results from Adecco and Oerlikon on Tuesday, Adidas and BMW on Wednesday, Siemens and Deutsche Telekom on Thursday and Richemont and Allianz on Friday. Another highlight is the news about the anticipated stock market debut of the Saudi-Arabian state-owned oil company Saudi Aramco. The IPO is scheduled to take place in December. The valuation is expected to be between USD 1.6 trillion and USD 2.3 trillion.

SNB soon under pressure to take action?

Swiss National Bank (SNB) President Thomas Jordan said that the central bank, with its negative interest rates, must ensure that the interest rate differential with the rest of the world does not erode too much against the background of the easing of monetary policy by the ECB and the Fed's interest rate cuts. A further narrowing of the interest rate differential would increase the upward pressure on the franc and weaken economic growth, Jordan commented. Should the ECB further tighten its easing course, the SNB would also come under pressure to push the key interest rate level (currently minus 0.75%) further into negative territory. At any rate, an end to the negative interest rates is not foreseeable for the SNB at the moment, Jordan stressed. The SNB's next regular monetary policy decision is scheduled for 12 December.

Google grabs Fitbit

Alphabet, the parent company of Google, acquires the manufacturer of Smartwatch Fitbit for USD 2.1bn. Google pays USD 7.35 per Fitbit share, representing a premium of 71% to the closing price on October 28. With Google's resources and platform, Fitbit will be able to innovate quickly, said Fitbit co-founder and CEO James Park.



Economic Indicators November 4

MEZ Country Indicator Last
10:30 EZ Sentix Investor Sentiment -16.75
16:00 US Factory Ordres (m/m) -0.1%

Earnings Calendar November 4

Country Corporate Period
SZ Adecco Q3
SZ Dufry Q3
SZ Oerlikon Q3
GE Hugo Boss Q3
SP Telefonica Q3
US Marriott International Q3



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Source: LGT Bank (Switzerland) Ltd.

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