3 minDespite countless US administration about-faces, the global economy appears to be holding up
Guy Wagner The to-and-fro of Donald Trump's tariff policy maintains a general climate of uncertainty, reducing visibility for all economic players. Nevertheless, despite countless US administration about-faces, the global economy appears to be holding up, with signs of slowdown so far contained, note Guy Wagner and his team in their latest monthly market report "Highlights".
“In the US, the slight deceleration in household spending in April can be explained by earlier purchases made prior to the introduction of tariffs,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments. “Industrial production even seems to be picking up since the easing of trade tensions with China, with companies rushing to build up inventories ahead of the possible end of the tariff truce on July 8.” In the eurozone, economic activity is continuing to grow at a sluggish but positive pace, with the manufacturing sector proving more robust than service activities since the start of the year. In China, domestic consumption and industrial production are benefiting from government stimulus measures, while exports have rebounded since the reduction in US tariffs. In Japan, first-quarter GDP was down 0.2% on Q4 2024, due to falling external demand and stagnant domestic activity.
Nervousness around US long rates remains high, as investors continue to doubt the ability of US government bonds to maintain the role of ultimate safe haven after the Trump administration's change in trade policy and the lack of improvement in the budget deficit. Guy Wagner
In the Eurozone, the headline inflation rate reached the ECB’s target level
The tariff policy of the Trump administration has not yet led to a deterioration in US price indicators. The headline inflation rate fell from 2.4% in March to 2.3% in April. In the Eurozone, the headline inflation rate reached the European Central Bank's target level, falling from 2.2% in April to 1.9% in May.
US Federal Reserve leaves monetary policy unchanged
In line with expectations, the US Federal Reserve left monetary policy unchanged at its May meeting. Chairman Jerome Powell reiterated the monetary authorities' wait-and-see stance with a view to observing which of its 2 objectives, full employment or 2% inflation, will prove more at risk following the new administration's tariff policy. In the eurozone, a further reduction in the European Central Bank's deposit rate by 25 basis points to 2% at the beginning of June seems highly likely.
Nervousness around US long rates remains high
“Nervousness around US long rates remains high, as investors continue to doubt the ability of US government bonds to maintain the role of ultimate safe haven after the Trump administration's change in trade policy and the lack of improvement in the budget deficit,” clarifies the Luxembourgish economist. In May, the yield on the 10-year US Treasury note rose, while that on the 30-year note even reached the 5% mark, returning to the higher levels preceding the great financial crisis of 2008. In the eurozone, bond yields were little changed.
Technology, communication services and industry were the best performers
Stock markets rebounded strongly in May, with most indices returning to levels above those in place prior to Liberation Day on April 2. The month's rebound was mainly triggered by the reduction in US tariffs on Chinese imports from 145% to 30%, ending a situation that had amounted to a de facto embargo on Chinese products. Guy Wagner: “Generally speaking, Donald Trump's strategy of announcing tariffs only to suspend them a few days later is reassuring investors that the so-called “Trump put” will be maintained on financial markets.” The MSCI All Country World Net Total Return index gained strongly over the month. At regional level, the S&P 500 in the United States, the Stoxx Europe 600, the Topix in Japan and the MSCI Emerging Markets index all rose. “In terms of sectors, technology, communication services and industry were the best performers, while consumer staples, real estate and healthcare recorded the least favourable trends.”
