3 minThe divide between a robust US economy
and a faltering world economy continues
Guy Wagner The divide between a still robust US economy and a faltering economy in the rest of the world continues. In the US, activity indices in the service sector continued to improve last month, reaching levels similar to those at the end of the pandemic boom in 2022, suggesting continued unwavering progress in domestic consumption, note Guy Wagner and his team in their latest monthly market report "Highlights".
“In the Eurozone, manufacturing output weakened further, while service activities appear to remain sufficiently robust to prevent a general contraction in fourth-quarter gross domestic product. In China, monetary and fiscal stimulus measures have had an initial positive impact, although household confidence remains very fragile,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments. In Japan, GDP increased by 0.2% in the third quarter, after rising by 0.5% in the previous three months. “A return to positive wage growth in real terms should continue to support demand over the rest of the year,” estimates the Luxembourgish economist.
The strong 6.6% rise in the MSCI All Country World Index Net Total Return was driven almost exclusively by US equities. Guy Wagner
Inflation stagnates in the USA
After the significant decline of the last two years, inflation, particularly that excluding energy and food, is tending to stagnate. In the USA, for example, overall inflation rose from 2.4% in September to 2.6% in October. In the Eurozone, the headline inflation rate rose from 2.0% in October to 2.3% in November.
Expected reduction in central banks’ key interest rates in the USA and Europe
In line with expectations, the US Federal Reserve cut its key interest rates by 25 basis points, bringing the target range for the federal funds rate down to 4.50% - 4.75%. At the final meeting of the year in December, a further 25 basis points interest-rate cut looks all but certain. Given the resilience of underlying inflation in recent months, however, the outlook for rates in 2025 has become considerably more uncertain. In the eurozone, there was no meeting of the Central Bank Governing Council during the month. At the December meeting, a further 25 basis points cut in the deposit rate seems highly likely, given the weakness of economic activity and recent comments by monetary officials.
Weak economy intensifies decline in long-term interest rates in the eurozone
Despite Donald Trump's victory in the US presidential elections and expectations of continued robust economic growth in the US, the yield to maturity on the 10-year US Treasury note eased from 4.28% to 4.17% over the month. In the Eurozone, the fall in long-term interest rates was sharpened by economic weakness. The benchmark 10-year rate fell in Germany, France, Italy and Spain.
Donald Trump's election victory boosts financial markets
In November, the financial markets evolved under the sign of Donald Trump's election victory. Guy Wagner: “The strong 6.6% rise in the MSCI All Country World Index Net Total Return, expressed in euros, was driven almost exclusively by US equities, while other regions barely participated in the rally.” Despite the strength of the dollar, the S&P 500 in the USA rose by 5.7% (in USD). The Stoxx 600 Europe rose by 1.0% (in EUR), while Japan's Topix, affected by the yen's rebound, fell by 0.6% (in JPY), and the MSCI Emerging Markets index even dropped by 3.7% (in USD). “Sector-wise, consumer discretionary, finance and technology were the best performers, while utilities, healthcare and materials fared least well.”
