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LGT Navigator: Stocks rally on hopes for a coronavirus vaccine

May 19, 2020

At the beginning of the week, stock markets were dominated by confidence. Investors are hoping for a rapid economic recovery following the easing of lockdown-measures in many countries, especially in the US. Federal Reserve Chairman Powell provided another boost as he put his recent pessimistic outlook into perspective and did not rule out the possibility of an economic recovery as early as summer. Investor sentiment was also supported by positive results from early tests of a coronavirus vaccine.

Stock markets rally
Stock markets rally

US Federal Reserve Chairman Jerome Powell expects a steady economic recovery in the second half of the year, provided there is no second wave of infection. The Fed Chairman considers a Covid-19 vaccine to be crucial for this. However, the recovery process could drag on until the end of next year. Another positive sign yesterday was the news that the American biotech company Moderna has presented positive interim results from a Phase-I-study on a coronavirus vaccine candidate. Investors reacted with relief to the news and global equity markets rose sharply. In New York, the S&P 500 climbed 3.2%, making up for the previous week's losses. The leading European stock exchanges had already closed in the black before that. The friendly sentiment also boosted the Asian markets: the Nikkei in Tokyo and the Hang Seng Index in Hong Kong each advanced by around 2%.

Trump threatens to leave WHO

Meanwhile, US President Donald Trump has threatened to withdraw financial support from the World Health Organization (WHO) for good. The US is considering leaving the organization, he twittered on Monday evening. Trump stopped payments to the WHO a month ago, accusing the organisation of serious failures in dealing with the corona pandemic and of lacking independence from China.

ECB chief economist expects economic recovery in 2021 at the earliest

According to ECB Chief Economist Philip Lane it could take until the end of 2021 for the eurozone economy to return to pre-corona levels. The ECB is ready to adjust its measures in the fight against the crisis if necessary. If the pressure on the bond markets does not match the economic fundamentals, the ECB could adjust the size or duration of its bond purchases to support the economy, Lane commented in an interview.

Bundesbank: Economic outlook is subject to very high uncertainty

In its monthly report presented yesterday, the German Bundesbank emphasized that a revival of the economy can be expected in the course of the easing measures, but uncertainty about the further economic development remains high at present. The German economy remained firmly in the grip of the corona crisis in the second quarter. The further course of events will depend very much on how well the pandemic could be contained – but above all on how consumer and investment behaviour will be changing, the central bank stated.

Small ray of hope for Swiss industry

The corona pandemic is leaving its mark on the Swiss economy. The business situation in the manufacturing sector deteriorated further in May, according to the Swiss Institute “Konjunkturforschungsstelle der ETH Zürich” (KOF). The barometer is approaching the negative values observed during the 2009 financial crisis. However, there is a small ray of hope, as survey participants assess that demand will develop somewhat better than they anticipated in April. They expect the effects of the crisis to diminish slightly or even significantly.



Economic Indicators May 19

MEZ Country Indicator Last
06:30 JPN Capacity Utilization -1.8
10:30 GBR Unemployment rate 4.0
11:00 GER ZEW economic expectations 25.2
14:30 US Housing starts 1.216 mio.
14:30 US Building permits 1.350 mio.

Earnings Calendar May 19

Country Corporate Period
CH Sonova Q4
JPN Sony Financial Holding Q4
US Home Depot Q1
US Walmart Q1



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Source: LGT Bank (Switzerland) Ltd.

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