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LGT Navigator: Unclear economic consequences of the coronavirus crisis unsettle stock markets

February 14, 2020

A faster-than-expected increase in new cases and deaths due to the “COVID-19” virus abruptly halted the recent rally on equity markets. It remains difficult to estimate the expected negative impact on the world's second largest economy and subsequently on the global economy. The Asian stock exchanges did not find a uniform trend on the last trading day of the week and futures are signaling a start of trading for Europe's stock markets slightly above the previous day's levels.

Unclear economic consequences of the coronavirus crisis

The rapid increase in the number of people infected with the coronavirus and the number of deaths caused by it, which is mainly due to more accurate measurement methods, has scared investors and is causing ongoing uncertainty. It is also unclear how great the economic damage is, especially for China, but also for the global economy. In the course of the current reporting season, more and more companies are pointing out the yet unforeseeable consequences of the coronavirus crisis.

The coronavirus epidemic is also affecting the Chinese car market, which has already been weakened by the trade conflict. According to the China Association of Automobile Manufacturers (CAAM), sales of new cars at the beginning of the year fell by around one-fifth year-on-year to 1.61 million vehicles – the sharpest drop since January 2012. CAAM now expects car production in the current year to be one million vehicles lower than in 2019. Last year, around 21 million passenger cars were sold in the People's Republic.

US Inflation climbs to highest level since autumn 2018

In the United States, the cost of living in January rose more strongly than economists had predicted, rising to +2.5% from +2.3% in December. The inflation rate thus reached its highest level since October 2018, when it was expected to rise to +2.4% on average. Month-on-month consumer prices rose by +0.1%, but somewhat less than expected. The core inflation rate, i.e. excluding energy and food prices, which are often susceptible to fluctuations, was +2.3% for the year as a whole in January. So far, the development of inflation has not triggered any need for action by the US Federal Reserve (Fed), as geopolitical risks such as the trade conflict or the current coronavirus crisis also represent a danger to the US economy that is weighted more highly by the Fed.

Inflation also increased in Germany at the beginning of the year

In Germany, consumer prices rose by +1.7% year-on-year in January, with inflation reaching its highest level for six months. The background were higher energy prices over the year. In December and November, the annual inflation rate was still +1.5% and only +1.1% respectively. In particular, consumers had to pay more for fuels (+5.2%) and electricity (+3.9%) as well as food (+2.3%), especially meat (+6.2%) and fruit (+6%).

Renault cuts dividend

French carmaker Renault is cutting its dividend for 2019 by more than two thirds to EUR 1.10 per share after last year's operating profit fell by -30% to EUR 2.11bn, clearly falling short of the market consensus of EUR 2.65bn. Revenues, however, were in line with expectations at EUR 55.5bn. The operating margin at Group level was 4.8%. In the outlook, Renault expects sales to be at the same level as last year (excluding currency effects) and an operating margin of 3-4%.

Tesla gets some fresh money

Tesla, the American manufacturer of electric cars, is using the current positive assessment of investors and the rally in Tesla shares for a capital increase worth billions. Although Tesla boss Elon Musk recently ruled out issuing new shares for fear of diluting the share price, the company plans to raise USD 2bn. Following the announcement of the capital increase, the share price fell by around -5%. Since the beginning of the year, the shares had risen from about USD 420 to over USD 900. In view of the targeted growth and the expansion of production capacities, Tesla is dependent on fresh money.



Economic Indicators February 14

MEZ Country Indicator Last
08:00 GE GDP Q4 (q/q) +0.1%
09:00 SP Consumer Prices (y/y) +1.1%
11:00 EZ GDP Q4 (q/q) +0.1%
11:00 EZ Trade Balance -EUR 19.2bn
14:30 US Retail Sales (m/m) +0.3%
14:30 US Import Prices (y/y) +0.5%
15:15 US Industrial Production (m/m) -0.3%
16:00 US Michigan Consumer Confidence 99.8

Earnings Calendar February 14

Country Corporate Period
SZ Schindler Y19
FR Renault Y19
UK AstraZeneca Y19



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Source: LGT Bank (Switzerland) Ltd.

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