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LGT Navigator: Rising numbers of corona infections in Europe cause uncertainty

October 16, 2020

The rapid spread of the coronavirus in Europe is putting a strain on stock markets worldwide. Numerous governments have now tightened their protective measures again. In the US, the recovery of the labor market stagnates shortly before the presidential elections. 

Eiffel tower closed due to the corona pandemic

In Asia, stock markets trade unevenly on the last trading day of the week. In Tokyo, the Nikkei loses 0.4% and the Shanghai Composite is down slightly. In Hong Kong, the Hang Seng gains 0.9%. On the previous day, the stock exchanges in the US and in Europe closed lower, in some cases significantly. The strong growth in new corona infections in Europe depressed the mood, and the stalemate in negotiations for a new corona aid package in the US Congress also weighed on the markets. The S&P 500 contained initial losses and finally closed 0.2% lower. The technology index Nasdaq Composite lost 0.5%.

The handling of the corona virus was also a topic in the town halls that US President Donald Trump and his challenger Joe Biden held at various television stations. Actually, the two rivals should have met in a TV duel. This debate was cancelled after Trump fell ill with the virus.

Wave of infections in Europe

The rapid spread of the coronavirus has forced many European governments to re-enforce protective measures in the fight against the pandemic. French President Emmanuel Macron has once again declared a health emergency and announced night-time curfews for Paris and other cities. In Germany, restrictions in public and private life are also being tightened after the number of cases has reached a new record. In Switzerland, too, the number of new infections is now higher than the record levels seen in spring. 

The worsening of the situation has also caused uncertainty on the stock markets. On Thursday, the Swiss leading index SMI fell by 2.2%, the worst daily result since June. Things did not look much better on the stock exchanges in Frankfurt, London and Paris, where the indices lost -2.5%, -1.7% and -2.1% respectively by the end of trading. 

On Thursday, ECB President Christine Lagarde took the floor and declared that the central bank was ready to cushion the economic consequences of the pandemic. The ECB has many instruments at its disposal, ranging from interest rates to forward guidance and asset purchase programs, she explained. “We stand ready”, Lagarde said. 

Initial jobless claims are rising in the US

The recovery of the US labor market is losing momentum shortly before the presidential elections. Within a week, 898 000 people filed for unemployment benefits, 53 000 more than in the previous week, the Labor Department announced. Analysts, however, had expected a decrease to 825 000. After weekly applications reached a record level of almost 7 million in April, they fell steadily in the weeks that followed. However, since the beginning of September, the numbers have hardly fallen at all, remaining at 800 000 to 900 000 – considerably more than before the outbreak of the pandemic (approx. 200 000). 

In contrast, the business climate in the Philadelphia region has improved unexpectedly. The Philly-Fed Index climbed to 32.3 points in October, up from 15 points the previous month. The barometer is thus at its highest level since February, with a value above zero signifying growth in economic activity. In April, when the pandemic took firm hold of the US economy, the index fell to -56.6 points

Job cuts in the German industry

The German manufacturing sector has lost more jobs than in over a decade. At the end of August, 5.5 million people were employed in the industrial sector, 3.1% fewer than in the same period last year. The last major decline occurred in May 2010, when the manufacturing sector had to cope with the consequences of the financial crisis. This time, the corona crisis is the cause of the job cuts: due to the global decline in demand, the personnel requirements of export-oriented companies are shrinking.

Chinese central bank sticks to loose monetary policy

China's central bank ensures that the financial system continues to have sufficient liquidity. To this end, it provides commercial banks with 500 billion yuan, which it makes available in the form of one-year loans. Another 50 billion yuan is provided by the monetary authorities in the form of one-week loans. Since central bank loans in the amount of 200 billion yuan are due this week, part of the liquidity will be withdrawn again. The key interest rates remain unchanged. After the Chinese economy was hit hard by the corona crisis, there are now signs of a recovery.

 

 

Economic Indicators October 16

MEZ Country Indicator Last
11:00 EZ Consumer prices (September, y/y) -0.3%
14:30 US Retail sales (September, m/m) 0.6%
15:15 US Industrial production (September, m/m) 0.4%
16:00 US Consumer confidence (October) 80.4

Earnings Calendar October 16

Country Corporate Period
US Morgan Stanley Q3
US Walgrens Boots Alliance

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Tina Haldner, +41 44 250 78 72, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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