LGT Navigator: Euro strength increasingly in the focus of the ECB

LGT Navigator: As expected, the European Central Bank left its monetary policy bias unchanged for the time being.

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In her assessment of the economy, ECB President Lagarde was slightly more optimistic, but also concerned about the appreciation of the euro. While the Brexit negotiations are going into prolongation once more, and are affecting stock market activity in Europe in particular, US equity indices posted losses again yesterday after a brief recovery in the middle of the week. In New York, the focus remains on technology stocks.

As expected, the European Central Bank (ECB) maintained its monetary policy at a constant level, which means that both the key interest rates and the securities purchase programs as well as its forward guidance remain unchanged. However, the ECB stands ready to adjust all its instruments in order to ensure that inflation is permanently brought closer to the target range. ECB President Christine Lagarde was a bid more optimistic in her assessment of the economic outlook in the eurozone. In view of the corona crisis, the ECB expects the economic output of the euro countries to decline by -8% this year. The forecast of -8.7% was thus slightly improved, but the projection for the anticipated recovery in the coming year was moderately lowered from +5.2% to +5.0%. For 2022, the ECB expects growth of +3.2% (previously +3.3%). The central bank left its inflation forecast largely unchanged. Lagarde stressed that the ECB does not see the negative inflation rate observed in August as a harbinger of deflationary developments. At the same time, the ECB seems to be quite concerned about the appreciation of the euro. Lagarde emphasized that the exchange rate has an important influence on inflationary developments and that the central bank will monitor this. However, the ECB is not aiming for a specific euro exchange rate, Lagarde emphasized.

Tech stocks continue to dominate events on Wall Street

On the New York Stock Exchange, the major technology stocks were unable to maintain the recovery trend of the previous day. As a result, the Nasdaq 100 fell by around -2% compared to the previous day’s close and the Dow Jones Industrial also posted a daily loss of -1.45%, closing at 27 534.58 points. The market-wide S&P 500 fell by -1.76% to 3 339.05 points. The stock market sentiment in New York was also burdened by the failed Republican bill for corona aid in the US Senate. However, the latest data on the US labor market did not provide any impetus. The recovery is slow, but the situation seems to be improving step by step. The current pandemic situation in the United States, with more than 6.3 million people demonstrably infected and over 190 000 deaths, remains a major risk for the world’s largest economy. In Asia, the trend on stock markets was a bid friendlier, but no consistent trend was apparent. In Tokyo, the Nikkei Index, which comprises 225 stocks, is trading about +0.6% higher.

Brexit-Poker goes into overtime once again

The difficult talks on a trade pact between the UK and the European Union are to continue next week. No breakthrough had been achieved until yesterday, and the tone had been significantly tightened with British Prime Minister Boris Johnson’s call for adjustments to the existing agreement. An agreement would have to be reached in October so that a trade pact can be ratified in time before the end of the Brexit transition phase. In the meantime, the ECB has also expressed concern about the danger of an unregulated relationship between the EU and Great Britain. Although the ECB is not in the driver’s seat during the negotiations, it is nevertheless following them carefully, said ECB President Lagarde yesterday. She hopes that the talks will lead to a positive outcome, also in view of the economic risks that a hard Brexit entails.

Recovery in French industry slows down

Although the French industrial sector remained on course for recovery in July, the month-on-month increase in industrial production of +3.8% was 3.8% lower than economists had expected at +5.0%. In May and June, production in the second largest economy in the euro zone rose by +20% and +13% respectively in response to the previous corona-related slump (March and April total -37.4%). This means that the severe setback has practically been made up for, but the recovery process appears to be losing much of its momentum.

Economic Indicators September 11
MEZ Country Indicator Last
09:00 SP Industrial Production (July, y/y) -9.6%
10:30 UK Industrial Production (July, y/y) -12.5%
14:30 US Consumer Prices (August, y/y) +1.0%
14:30 US Core Consumer Prices (August, y/y) +1.6%


Earnings Calendar September 13
Country Corporate Period
US Oracle Q1


Quelle: BondWorld.ch