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LGT Navigator: Central bankers' summit in focus

August 27, 2020

While the developments in the corona pandemic remain the overarching theme on capital markets, investors are eagerly awaiting the assessments of the most important central bankers at the Jackson Hole Symposium in the coming days. Meanwhile, tensions between the US and China appear to be rising once again following an incident, which is weighing on stock market sentiment. On the other hand, the rally in technology stocks is continuing.

Central bankers' summit in focus

Starting today, Fed Chairman Jerome Powell, ECB President Christine Lagarde and other high-ranking central bankers will use video conferences to exchange their current assessment of the global economic situation and monetary policy. The meeting of the central bank heads will take place under the motto: “Navigating the decade ahead and the implications for monetary policy“.

On the US stock markets, the boom in the technology sector continued yesterday, leading some of the tech stars to set new records. The technology-heavy Nasdaq 100 index gained +2.13% and closed at 11 971.94 points, just below the 12 000 mark. The shares of the cloud specialist and future member of the Dow Jones Club Salesforce jumped by more than +12%. In the maelstrom of tech shares, the market-wide S&P 500 also rose by +1.03% to 3 478.73 points, reaching another record high. The Dow Jones Industrial, on the other hand, was again sluggish, posting a daily gain of only +0.3%. The Dow closed the day at 28 331.92 points.

In Asia, stock market sentiment was clouded by renewed tensions between the US and China. The background is Beijing's accusation that a US military jet in espionage activity is said to have intentionally violated the Chinese airspace over the South China Sea. In Tokyo, the Nikkei index, which comprises 225 values, is -0.42% lower at 23 193.76 points.

Corona economic slump far outstrips financial crisis

According to the Organization for Economic Co-operation and Development (OECD), gross domestic product in the 30 OECD countries slumped more sharply than ever before in the second quarter. As a result of the coronavirus pandemic and the drastic measures that followed, economic output fell by -9.8% compared with the previous quarter. By way of comparison: during the global financial crisis, the decline in the OECD area was just -2.3% (Q1 2009).

Investment activity in the US picks up again after the corona shock

An unexpectedly strong increase in orders for civil capital goods (excluding aviation) of +1.9% in July compared to the previous month indicates that investment in the US is regaining momentum after the slump during the lockdown. Overall, orders for durable goods (e.g. machinery or aircraft) rose by +11.2% on a monthly basis in July, which was significantly better than the +4.3% increase anticipated by analysts.

Negative effects of prolonged negative interest rates

ECB Director Isabel Schnabel emphasized at the congress of the European Economic Association that the ECB is aware of the risk that persistently negative interest rates could lead to less lending by commercial banks' lending less, not more, to the real economy. In addition, the German central banker assumes that the side effects of negative interest rates will become more relevant over time, as they reflect negative macroeconomic trends that the central bank cannot influence. Therefore, a powerful government response to the corona crisis is necessary to promote economic growth and thus pave the way back to positive interest rates.

ECB may not need to take full advantage of crisis program

According to Slovakian ECB member Peter Kazimir, economic growth in the euro zone is currently in line with the latest forecasts of the central bank. In addition, the bond purchases under the Pandemic Bond Purchase Program (PEPP) have had an impact, Kazimir said. With the fiscal packages of the individual euro countries on the way, the ECB might not be forced to make full use of its bond purchase program. Through PEPP, the ECB is combating the economic consequences of the corona pandemic. In June, the central bank extended the program by a further EUR 600bn to EUR 1.35 trillion and extended it until at least the end of June 2021.

 

 

Economic Indicators August 27

MEZ Country Indicator Last
07:45 SZ GDP Q2 (q/q) -2.6%
08:45 FR Business Climate Index (August) 84.7
10:00 IT Industrial Orders (June, y/y) -34.7%
14:30 US GDP Q2 (revision, annualized q/q) -32.9%
14:30 US Personal Consumption Q2 (revision, q/q) -34.6%
14:30 US Initial Jobless Claims (weekly) +1.106m
16:00 US Pending Home Sales (July, m/m) +16.6%
16:00 US Pending Home Sales (July, y/y) +12.7%

Earnings Calendar August 27

Country Corporate Period
SZ Baloise H1

 

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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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