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LGT Navigator: Hopes for Sino-American partial agreement

November 6, 2019

Supported by hopes of a partial or provisional settlement in the trade conflict, the mood on the stock markets remained largely positive. In view of the strong price gains of recent days and the fact that the corporate reporting season is drawing to a close, at least in the USA, the record chase yesterday was somewhat limited.

Trade War

In the ongoing trade dispute, the US and China seem to be moving closer together. According to the Wall Street Journal and the Financial Times, the conflicting parties could withdraw tariffs that have already been imposed in a first phase. This would allow Washington and Beijing to send a strong signal of goodwill before the presidents meet in person and sign a partial agreement. This would certainly be a success for both sides and an important trump card for the US president in view of the upcoming US election campaign.

Meanwhile, US President Trump and British Prime Minister Boris Johnson have spoken on the phone about trade relations between the two countries following Britain's imminent withdrawal from the EU. The two countries want to initiate a bilateral trade agreement after the Brexit.

Solid US economic news

The mood in the American service sector improved surprisingly strongly in October, according to the latest survey results of the industry association Institute for Supply Management. The ISM Purchasing Managers' Index rose by +2.1 points to 54.7 points in October, thus remaining well above the growth threshold of 50 points. According to the Institute, the companies surveyed recorded an increase in new orders and hired more staff. At the same time, the US trade deficit narrowed in September, especially with China. Overall, the US recorded a global trade deficit of USD 52.5bn - 4.7% less than in the previous month. Imports from the People's Republic exceeded exports by USD 31.6bn, reducing the deficit by around USD 100m. The deficit in trade with the European Union was also lower. This fell by around USD 1.7bn to USD 13.7bn.

Adidas aiming for another record year

After a strong Q3, the German sporting goods manufacturer Adidas is optimistic to close the current fiscal year with another record result. CEO Kasper Rorsted expects sales growth to accelerate significantly in the final quarter. In Q3 currency-adjusted sales increased by +6% to EUR 6.41bn. Income from continuing operations increased by +8% to EUR 1.74bn. In its Q4 outlook, Adidas now expects profit to increase by +10-14% to EUR 1.88-1.95bn.

BMW beats profit and sales expectations

After a strong third quarter, BMW confirmed that it would achieve a return on sales of between 4.5% and 6.5% in the current year. In Q3, the car manufacturer recorded a significantly higher profit and turnover, thus exceeding market expectations. EBIT operating profit increased by just under +33% to EUR 2.29bn and sales rose by +7.9% to EUR 26.67bn. On average, analysts had expected a profit of EUR 2.16bn and sales of EUR 25.5bn.

Xerox considers billion-dollar acquisition of HP

According to the Wall Street Journal, the US printer manufacturer Xerox is considering acquiring the computer group Hewlett-Packard (HP), which is more than three times the size, for around USD 27 billion in cash and shares. Both companies did not want to comment on the report.

China's central bank signals further easing

In view of the weakening economy, the Chinese central bank lowered the important interest rate for medium-term loans to financial institutions (MLF) by five basis points to 3.25% for the first time since 2016. According to analysts, the move could indicate that the People's Bank of China could soon loosen its new reference rate LPR (Loan Prime Rate) of currently 4.2% for the third consecutive month. The central bank had already announced that it would take further steps to support the economy against the backdrop of the negative impact of the trade dispute with the US on economic growth.



Economic Indicators November 6

MEZ Country Indicator Last
08:00 GE Factory Orders (y/y) -6.7%
08:15 SP Markit PMI Composite 51.7
09:45 IT Markit PMI Composite 50.6
09:50 FR Markit PMI Composite 52.6
09:55 GE Markit PMI Composite 48.6
10:00 EZ Markit PMI Composite 50.2
11:00 EZ Retail Sales (y/y) +2.1%
14:30 US Non-Farm Productivity Q3 (q/q) +2.3%

Earnings Calendar November 6

Country Corporate Period
SZ Barry Callebaut Y
GE Adidas Q3
NL Ahold Q3



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