3 minGlobal growth depends strongly on the spending habits of American households
Guy Wagner On the eve of Donald Trump's inauguration as the 47th President of the United States, global growth is more dependent than ever on the spending habits of American households. Nonetheless, they continue to benefit from extraordinary fiscal support, without which they would hardly be able to assume the role of consumers of last resort, note Guy Wagner and his team in their latest monthly market report "Highlights".
“Fiscal support for the American consumer is translating into public finances in tatters, and this just days before the return to the White House of a president with little inclination for moderation,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments. “In the eurozone, weak economic activity is accompanied by political instability in many countries, making it difficult to take effective measures to restore growth.” In China, the real estate bubble was of such magnitude that the numerous public support measures taken during the fourth quarter will be slow to produce positive effects. In Japan, continued positive wage growth in real terms is crucial to maintaining a favourable economic dynamic.
In Europe, bond yields followed the trend of their US counterparts, despite significantly weaker economic activity. Guy Wagner
Inflation is tending to stagnate
After a significant decline over the last two years, inflation, particularly that excluding energy and food, is tending to stagnate. In the US, for example, overall inflation rose from 2.6% in October to 2.7% in November. The personal consumption expenditure core price index, the Federal Reserve's preferred price indicator, remained unchanged. In the Eurozone, the headline inflation rate rose from 2.2% in November to 2.4% in December. The inflation rate excluding energy and food also remained stable.
Only two interest rate cuts expected in the US in 2025
In line with expectations, the US Federal Reserve lowered its key interest rates by 25 basis points at its last meeting of 2024. For this year, the members of the Monetary Committee expect only two further rate cuts, “given that both inflation and the labour market are proving more resilient than previously expected,” emphasises the Luxembourgish economist. In the eurozone, the European Central Bank also cut the deposit rate by 25 basis points as planned at the December meeting. Due to weak growth in the eurozone, interest rates could continue to fall over the course of this year.
Long-term interest rates ending 2024 near annual highs
In the United States, the resilience of both growth and inflation pushed long-term interest rates back up to the highest levels reached during the year. The yield to maturity on the 10-year US Treasury note rose considerably. “In Europe, bond yields followed the trend of their US counterparts, despite significantly weaker economic activity.” The benchmark 10-year rate rose in Germany, France, Italy and Spain. Over 2024 as a whole, the JP Morgan EMU Government Bond Index rose by 1.8%.
Equity indices record significant gains for the second year in a row
After a euphoric November, stock markets consolidated their gains in December, ending the year on a soft note. “Over 2024 as a whole, however, most equity indices recorded significant gains, for the second time in succession.” For example, the MSCI All Country World Index Net Total Return expressed in euros fell slightly in December to end the year with a total gain of 25.3%. At the regional level, the S&P 500 in the USA fell by 2.5% (in USD) over the month, the Stoxx 600 Europe by 0.5% (in EUR) and the MSCI Emerging Markets index by 0.5% (in USD). Only Japan's Topix, buoyed by the yen's weakness, rose by 3.9% (in JPY). “At sector level, communication services, consumer discretionary and technology posted the best monthly performances, while energy, real estate and materials recorded negative trends,” concludes Guy Wagner.
