The global economy continues
to grow at a sluggish pace

In the US, pockets of weakness are emerging here and there, but are not yet spreading systematically. For example, the recent slowdown in consumer spending is primarily affecting low-income households, who have used up their excess savings and are not benefiting from the rise in stock and property prices, note Guy Wagner and his team in their latest monthly market report "Highlights".

“Less precarious households do not appear to be altering their consumption habits, so service sector activity indices remain in expansion mode,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments. “Activity indicators in the manufacturing sector are evolving less favourably, with industrial orders and real estate showing the most notable signs of weakness.” In the eurozone, hopes of accelerating growth were tempered over the past month “by the lack of confirmation of previous signs of improvement”. In China, exports remain the most dynamic component of GDP, while support measures aimed at household consumption and the property sector still do not appear to be sufficient to bring about an acceleration in economic growth. In Japan, the gradual easing of inflation and favourable wage settlements should lead to a reacceleration in household consumption, hitherto affected by falling real incomes.

Driven by the leaders in technology and communications, many stock market indices, especially in the US, set new all-time records. Guy Wagner

When will the inflation target of 2% be reached?

Despite the moderation in inflation on both sides of the Atlantic, the question of whether and at what pace the movement towards the official 2% target will continue remains open. In the US, for example, headline inflation eased slightly from 3.4% in April to 3.3% in May. In the Eurozone, overall inflation fell to 2.5% from 2.6% in May.

Fed leaves key interest rates unchanged, ECB lowers them

In line with expectations, the US Federal Reserve left its key rates unchanged at its June meeting. Although inflation continues to ease, the Monetary Committee prefers to wait for more tangible signs of inflation returning towards 2% before initiating a less restrictive monetary policy. In the eurozone, the European Central Bank followed its guidance of recent weeks by cutting its key rates by 25 basis points at the beginning of the month. Nevertheless, President Christine Lagarde gave no clear indication of future moves, leaving open the question of whether this first cut will be followed by further reductions in the near future.

Uncertainties in France lead to higher bond yields in southern European countries

In the United States, the publication of inflation statistics confirming the moderation in price rises led to a slight easing in long-term interest rates for the second month running. “In the eurozone, political uncertainty in France following President Macron's dissolution of the National Assembly in the wake of the Rassemblement National's strong showing in the European elections triggered a pick up in the spread between German government bond yields and those of southern European countries,” emphasises the Luxembourgish economist. The 10-year benchmark rate fell in Germany, while it rose  in France, Italy and Spain. Since the beginning of the year, the JP Morgan EMU Government Bond Index has fallen by 1.9%.

Positive balance for stock markets in the first half of the year

“Stock markets ended the first half of the year on a high note, once again posting significant gains over the course of the month. Driven by the leaders in technology and communications, many stock market indices, especially in the US, set new all-time records.” Only Europe's Stoxx 600 was down by 1.3% (in EUR), due to the underperformance of many European and especially French stocks triggered by the dissolution of the French National Assembly. “In terms of sectors, technology and communication services were by far the best performers, while utilities and materials declined over the month”, concludes Guy Wagner.

Guy Wagner, Chief Investment Officer

Originally from a family of entrepreneurs in Luxembourg and with a degree in Economics from the Université Libre of Brussels, Guy joined Banque de Luxembourg in 1986, where he was successively responsible for the Financial Analysis and Asset Management departments, then became Managing Director of BLI - Banque de Luxembourg Investments, an asset management company newly created in 2005.

From July 2022 on, he devotes himself exclusively to his role as Chief Investment Officer, to the management of the portfolios and to the management of the team in charge management of the various funds.

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