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LGT Navigator: US jobs data does not alter the Fed's bias towards rate cuts

September 9, 2019

The US labor market report published on Friday was received positively by financial markets, as a further interest rate cut by the US Federal Reserve in September appears certain. Investors may also be hopeful that the resumption of trade talks between the USA and China will soon be crowned by success. However, the focus this week will be on the ECB's interest rate decision.

US companies have created 130,000 new jobs in August, missing the consensus forecast of 160,000 non-farm payrolls. The previous month's figure was corrected only slightly from 164,000 to 159,000. As expected, the unemployment rate remained unchanged at 3.7%. The slightly lower than expected jobs report should pave the way for the Fed to cut interest rates again by a quarter of a percentage point on September 18. Despite ongoing risks, the Fed's chairman continued to be confident about economic development in the US when he made an appearance in Zurich on Friday. Especially against the background of the "continuing significant risks to economic growth", the Fed is prepared to act "appropriately" to support the economy, Powell said. The prospect of further trade talks between Washington and Beijing in October as well as an easing on the political stage in Italy, where the new government under Prime Minister Giuseppe Conte sent conciliatory signals towards Brussels, also provided positive impetus. The main focus of market participants will be the interest rate meeting of the European Central Bank (ECB) on Thursday.

Japan's economy grows more slowly

According to revised data, the Japanese economy did not grow as strongly in the second quarter as it had been forecast in an initial calculation. The annualized GDP growth rate in Q2 was +1.3% compared with the previous estimate of +1.8%. The relatively strong correction was due in particular to lower corporate investments, suggesting that Japan's companies are being weighed down by the ongoing trade dispute between the US and China. In the first three months of the year, the economy grew by a revised +2.2%.

Brexit – renewed vote on new elections

Despite several defeats, British Prime Minister Boris Johnson is still aiming for early elections in mid-October and will try again today to obtain the approval of the House of Commons. Johnson wants to prevent a law against a "hard Brexit", but the Labour Party has already announced its opposition. To call new elections, the government would need the approval of two thirds of all Members of Parliament. Johnson had already failed in his first attempt on last Wednesday. On Friday a court dismissed a complaint against Prime Minister Boris Johnson's five-week forced break by the British parliament. On the other hand, the High Court in London allowed the possibility of an appeal to the Supreme Court, which was immediately announced by the plaintiffs.

Uncertainty factors leave their mark on the euro zone economy

Against the backdrop of the ongoing trade dispute between the US and China, the euro zone economy grew by only +0.2% in the second quarter compared with the previous quarter. This means that growth has halved from +0.4% at the beginning of the year. While exports stagnated, consumption and investment still provided a tailwind. Meanwhile, German industry in July reduced its production by more than expected for the second month in a row. Industrial production thus fell by -0.6% compared to the previous month, while economists had forecast an increase of +0.3%. Overall, the industrial economy remains weak and, in view of the weak start to the second half of the year and the lack of recovery in incoming orders, no improvement in the industrial economy is yet in sight, commented the Federal Ministry of Economics. The weaker global economy, the ongoing trade conflict and the Brexit crisis are causing problems for the export-dependent German economy. This is particularly evident in the order intake, which in the summer recorded the strongest decline in orders for six months due to falling overseas demand.

Russian central bank cuts rates again

The Russian central bank again loosened its key interest rate by a quarter of a percentage point to 7.0% and announced further rate cuts if consumer prices develop as expected. Inflation, which had been high for a long time, had recently fallen sharply. The current inflation rate is 4.3%, close to the target set by the central bank. The next monetary policy decision is due on October 25.

Economic Indicators September 9

MEZ Country Indicator Last
08:00 GE Exports (m/m) -0.1%
08:00 GE Importe (m/m) +0.7%
08:00 FR BdF Business Climate Index 95.48
10:30 GB Industrial Production (y/y) -0.6%
10:30 EZ Sentix Investor Sentiment -13.73

Earnings Calendar September 12

Country Corporate Period
SZ KABA Holding Y
US Kroger Q2

 

 

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Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Quelle: LGT Bank (Schweiz) AG
Core Personal Consumption Expenditure
MEZCountryIndicatorLast08:00DERetail Sales (y/y)-1.7%08:45FRConsumer Prices EU Harmonized (y/y)1.4%09:00ESGDP (y/y)2.4%09:55DEUnemployment Rate5.0%11:00EUGDP (y/y)1.2%11:00EUCore Consumer Prices (y/y)1.1%11:00EUUnemployment Rate7.5%11:00ITConsumer Prices EU Harmonized (y/y)0.8%12:00ITGDP (q/q)0.12%14:15USADP Employment Report102k20:00USFederal Funds Target Rate2.5%