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LGT Navigator: Weak economic data weigh on stock market sentiment

July 8, 2020

After a friendly start to the week, investors were again cautious on Tuesday. Worse than expected economic figures contributed to the change in sentiment. The EU Commission has lowered its economic outlook for the euro area. Gold ETFs, which have enjoyed great popularity during the crisis, are flying high in the current market environment.

Fragile

The mood of investors is currently changing on a daily basis. After the price gains at the beginning of the week, the stock markets took a breather on Tuesday. All major European indices closed with losses and the picture in the USA looks the same.

Disillusionment was caused, among other things, by worse than expected economic data from Germany. German industry increased production again in May and activity rose by +7.8% within a month. However, analysts had expected a plus of around +10%. Although the Federal Ministry of Economics is confident that the low point in the industry has been overcome, capacities are still clearly underutilized. In addition, the OECD is forecasting record high unemployment in the industrialized countries by the end of the year. The organization expects an average unemployment rate of 9.4% for its thirty member states in the fourth quarter. This would be the highest figure since the Great Depression in the 1930s.

Record investments in gold ETFs

Gold ETFs were among investors' favorites in the first half of the year. From January to June, 734 tons of the precious metal flowed into the instruments backed by gold, the industry association World Gold Council reported. Worldwide, the volume in gold ETFs amounts to a record 3621 tons. The price of gold rose sharply during the corona crisis and is currently trading at around USD 1790 per ounce. The price is thus approaching the record quotations of August 2011.

EU Commission lowers economic forecast

The European economy is likely to suffer more than expected from the consequences of the corona crisis. The European Commission is forecasting an economic contraction of -8.7% for the currency area in the current year. In spring, it had expected a decline of -7.7%. In addition, the recovery will be less strong than initial estimates indicated. Although the EU Commission expects the upswing to gain momentum in the second half of 2020, the upward trend is likely to vary from one member state to another. 

ECB advocates waiving dividend payments

Meanwhile, the European Central Bank (ECB) is considering asking banks to waive dividend payments and share buybacks for a longer period. Because of the pandemic, the ECB's banking supervisory authority has already appealed to banks not to distribute any profits until at least October 1. This deadline could now be extended. ECB President Christine Lagarde has also spoken out in favor of this, suggesting that no dividends be paid out until the end of the year.

Swiss companies' indebtedness increases

Swiss companies have increased their indebtedness in the wake of the pandemic, Credit Suisse notes in its credit handbook. In order to survive the corona crisis, companies have taken various measures, such as reducing operating costs by cutting staff. Many companies have also increased their debts and have exhausted credit lines with banks or raised money on the capital market, as the bank writes. This was also reflected in the volume of bond issues in April, which had increased significantly compared with the previous year. Overall, Credit Suisse believes that Swiss companies are well equipped to cope with the consequences of the crisis. 

Economic Indicators July 8

MEZ Country Indicator Last
07:45 CH Unemployment rate (June) 3.4%

Earnings Calendar July 14

Country Corporate Period
US JPMorgan Chase Q2
US Citigroup  Q2

 

 

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: David Wolf, +41 44 250 83 48, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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