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LGT Navigator: Market sentiment and global economic prospects remain under the spell of the virus

June 29, 2020

The coronavirus pandemic remains the dominant topic on the capital markets. Rapidly rising infection figures in the US, an uncontrolled spread in Brazil and signs of a second wave in some European countries are dampening investor sentiment. Renewed, at least local, lockdowns are endangering the hoped-for economic recovery. This is leaving a high degree of uncertainty on the international capital markets and causes investors to remain risk-averse at the beginning of the week.

Market sentiment and global economic prospects remain under the spell of the virus

In the United States, the numbers of new corona infections in the past few days have again increased significantly and the latest development seems to prove that opening the economy too early can reverse the spread of the virus, which was initially contained by the lockdown. In the US, the number of cases over the weekend even exceeded the previous peak from April. According to Johns Hopkins University, around 40 000 new cases were reported within 24 hours at the end of last week. In total, the USA has 2.549 million infected persons and 125 800 deaths. Meanwhile, bars in California, Texas and Florida, had to close again. There are currently 10.145 million confirmed Covid-19 infections and 501 893 deaths worldwide.

On the stock markets, concerns about the further development of the pandemic and its impact on the global economy continue to keep investors in suspense. On Friday, the Dow Jones Industrial index temporarily traded below the 25 000 mark, closing -2.84% lower at 25 015.55 points. The weekly loss was -3.3%. In Asia, the risk-averse attitude continued and most stock indices were down at the beginning of the week. In Tokyo, the Nikkei index fell by -2.22% to 22 011.31 points.

Lifting of the lockdown ensures at least a short-term recovery in US consumption

After a slump in April, American consumers were already providing a strong increase in consumer spending again in May. According to the US Department of Commerce, spending increased by +8.2% last month, thus making up part of the massive decline of -12.6% in the previous month surprisingly quickly. It will now be interesting to see how the renewed expansion and, in some cases, renewed lockdowns will impact private consumption. Another hopeful sign was delivered on Friday by the final survey results of the University of Michigan. According to these results, consumer sentiment in the US has clearly brightened up again in June. The consumer sentiment barometer rose to 78.1 points from 72.3 points in May. Although the final result was thus below the initially calculated 78.9 point, the rapid recovery nevertheless confirms that the private households surveyed are at least not currently fearing any further deterioration in the situation.

Of course, these are only snapshots and can be quickly reversed by the constantly changing development of the pandemic, especially in the US.

Euro economy should have passed the low point

ECB chief Christine Lagarde expressed confidence at an economic conference and believes that the eurozone economy is likely to have weathered the worst. However, the recovery would be complicated, gradual and regional and, in view of the risk of a second pandemic wave, the ECB would still be called upon to cushion the consequences of the corona crisis. The ECB will use the instruments that achieve the most proportional and effective results in terms of liquidity, monetary policy orientation and the transmission of the monetary policy signal to the entire euro area, Lagarde stressed.

Italy's entrepreneurs take courage again

According to the latest survey results, the mood among companies in Italy brightened somewhat in June. After the devastating effects of the pandemic, there are signs of recovery. The business climate barometer for the overall economy (industry and services) improved this month from 52.7 to 65.4 points. Italy was hit particularly hard by the pandemic, with more than 34 000 people killed. The International Monetary Fund (IMF) is forecasting a decline in gross domestic product of -12.8% in the current year for the third largest economy in the eurozone.

New round of talks between Brussels and London

The negotiations between the EU and the UK on a follow-up agreement for the period after the  Brexit transition phase are to be continued today. So far, the talks have been largely fruitless. EU chief negotiator Michel Barnier called for “clear signals“ in advance for a compromise from London. The EU is offering the British a comprehensive trade agreement with access to the EU market without tariffs or quantity limits, but in return is demanding equally high social, environmental and consumer standards. However, the UK does not want to accept any EU requirements. Other important points of contention include access for EU fishermen to the rich British fishing grounds, the role of the European Court of Justice in disputes between the contracting parties and the exchange of police data. If no agreement on future relations is reached, there could be a severe economic break with tariffs and other trade barriers in early 2021. British Prime Minister Boris Johnson has already ruled out an extension of the negotiation period on several occasions.

Economic Indicators June 29

MEZ Country Indicator Last
09:00 SP Consumer Prices (y/y) -0.9%
11:00 EZ Economic Sentiment June 67.5
14:00 GE Consumer Prices (y/y) +0.5%
16:00 US Pending Home Sales May (m/m) -21.8%
16:00 US Pending Home Sales May (y/y) -34.6%

Earnings Calendar July 14

Country Corporate Period
US JPMorgan Chase Q2
US Citigroup  Q2




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Source: LGT Bank (Switzerland) Ltd.

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