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September starts with a political quake in Germany and a data-packed week

Looking at Germany, it is not only the economic situation that is worrying, but also the political situation following the elections in Thuringia and Saxony. The historic success of the AfD - the right-wing party became the largest force in a state election for the first time, surpassing 30% in Thuringia - is shaking Europe's largest economy and is likely to put further pressure on the coalition government in Berlin. While expectations of an imminent change in the Fed's interest rate policy are driving sentiment in equity markets, investors are now looking ahead to a week with a number of important indicators. The focus will be on Friday's US employment data.

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Author
Dominique Stutz, LGT
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5 minutes

German flag with clouds
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Investors are now focusing on next Friday's release of US employment data. The data is likely to provide clues as to the extent of the Federal Reserve’s (Fed) interest rate decision. Investors will also be keeping an eye on stock prices, which are notoriously difficult in September. After fears of a recession drove share prices down in early August, the indices quickly recovered, driven in particular by expectations of interest rate cuts. Stock market sentiment remained broadly positive heading into the weekend.

The better-than-expected US economic data published on Friday afternoon did not trigger any major market movements. Personal income rose slightly more than expected in July. The price index for personal consumption expenditures, the inflation indicator favoured by the Federal Reserve, rose by 0.2% in July. The data could point in the direction that inflation is no longer the Fed's main concern as it has shifted its focus to the labour market.

In New York, stock indices ended the week in the green, buoyed by interest rate optimism. The Dow Jones Industrial hit a record high just before the bell and then closed slightly lower at 41,563.08, up 0.6%. On a monthly basis, the Dow gained 1.8% and has regained 8% since hitting its lowest level since mid-June in early August. The S&P 500 gained 1% on Friday to close at 5648.40, while the Nasdaq 100 gained 1.3% to 19,574.64. Nvidia shares also ended the week with a gain of 1.5% after falling the previous day. Today, US stock markets are closed for the Labour Day holiday.

Gold prices fell on Friday as the US-dollar and Treasury yields firmed. Spot gold was down 0.7% at USD 2503.95 an ounce.

In the Asia-Pacific region, equity markets fell on Monday after Chinese economic data released over the weekend showed that sentiment in the Chinese manufacturing sector continued to deteriorate. The Purchasing Managers' Index (PMI) for the Chinese manufacturing sector fell by 0.3 points to 49.1, marking the fourth consecutive month of decline and four months below the growth threshold of 50. At the same time, investors are awaiting a number of data releases later this week. These include inflation figures from South Korea, Australia's second quarter GDP data and wages and household spending data from Japan. Hong Kong's Hang Seng Index fell 1.7% and the Shanghai Composite was down 0.7%. In Tokyo, the Nikkei 225 rose 0.2% and the South Korean Kospi gained 0.4%. Australia's S&P/ASX 200 was up 0.2%.

In the euro area, inflation slowed significantly to its lowest level in three years. Eurozone inflation was 2.2% in August, down from 2.6% in July. The significant fall in inflation should give the European Central Bank (ECB) room to cut interest rates in September. The drop in Euro area inflation weighed on the euro on Friday. The euro fell to USD 1.1044, its lowest level in just over a year. It was trading at USD 1.1052 after the US stock market closed. The Euro Stoxx 50 was down 0.2%.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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