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LGT Navigator: ECB back in crisis mode

June 7, 2019

In view of increasing economic risks, the European Central Bank (ECB) is proposing a more expansive monetary policy course, with the result that the normalization of interest rate policy that the central bank is actually aiming for will be postponed into the distant future.

Navigator_Draghi

The ECB now expects interest rates to remain at the current record low level at least until the end of the first half of 2020 (previously: the end of 2019). At yesterday's press conference following the monetary policy decision, central bank head Mario Draghi kept all options open to react to a potential crisis or a possible economic slump triggered by the continuing uncertainties (trade war, Brexit or Italy's debt problems). It also appears that a further reduction in key interest rates or further options for action such as bond purchases and a broadening of the interest rate outlook (forward guidance) were discussed. The ECB has already decided on new money injections for banks. Between September 2019 and March 2021, two-year loans (TLTRO) are to be made available on favorable terms in order to boost lending in the euro zone and support economic growth.

Anticipated US labor market report

The US labor market statistics, due for release this afternoon at 2:30pm (CET), will be a prelude to the Federal Reserve's (Fed's) further interest rate policy. If the high expectations – the analysts' consensus assumes that employment will again grow strongly by 175,000 jobs in May, after a fulminant increase of 263,000 in the previous month – are missed by a wide margin, the Fed is likely to push clearly in the direction of interest rate cuts. The ADP report, which is regarded as an early indicator, showed disappointingly weak job growth in May on Wednesday. But a decisive factor for the Fed will also be the development of wages and their effect on inflation.

Trump marks hard line in negotiations

US President Donald Trump threatens China once again in the trade dispute with additional penalty tariffs worth billions. Trump said that he could increase the special tariffs on Chinese imports by at least USD 300bn and thus further fuel the tense mood. Tensions between Washington and Beijing have risen sharply since the failure of trade talks in early May, when the US increased tariffs on Chinese goods from USD 200bn to 25 percent. Since 10 May, there have also been no more personal meetings between the two largest economies in the world. At the same time Trump also repeated his threats against Mexico. The Mexican government would have to expand its efforts against illegal immigration to the USA, otherwise the Trump administration would impose an initial penalty duty of five percent on imports from Mexico. This could also have a negative impact on the German automakers Volkswagen, BMW and Daimler, which produce in Mexico for the US market.

Swiss Re ready for IPO of subsidiary ReAssure

Swiss Re floats its British subsidiary ReAssure on the London Stock Exchange. The company operates the British business with closed-end life insurance policies. Bloomberg reports that today's registration will be the first step towards a possible listing in the main market of LSE. With the IPO, Swiss Re intends to reduce its stake to below 50 percent from the current 75 percent.



Economic Indicators June 7

MEZ Country Indicator Last
07:45 SZ Unemployment Rate 2.4%
08:00 GE Exports (m/m) +1.6%
08:00 GE Imports (m/m) +0.6%
08:00 GE Industrial Production (y/y) -0.9%
08:45 FR Industrial Production (y/y) -0.9%
14:30 US Unemployment Rate 3.6%
14:30 US Non-Farm Payrolls (m/m) +263'000
14:30 US Average hourly earnings (y/y) +0.2%

Earnings Calendar June 18

Country Corporate Period
US Oracle Q4

 

 

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Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
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Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
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