Although economic growth is slowing, it remained positive in the main regions during the first quarter, write Guy Wagner and his team in their latest monthly market report "Highlights".
In the US, GDP grew at an annualised rate of 1.1% quarter-on-quarter, below both expectations and the 2.6% level posted in the last quarter of 2022. “The weaker than expected growth was mainly due to a slowdown in business investment and weak inventories, while household consumption expenditure still grew,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments.
Outside China, the economic slowdown is expected to continue in the coming months, gradually pushing growth rates into negative territory. Guy Wagner
Outside China, the economic slowdown is expected to continue
In the euro area, GDP grew by 0.1% quarter-on-quarter, also slightly below expectations. Activity stagnated in Germany and grew slightly in France, while Italy, Spain and Portugal recorded a stronger expansion. In China, the reopening of the economy boosted the growth rate to 4.5% year-on-year thanks to a rebound in domestic consumption. “Outside China, the economic slowdown is expected to continue in the coming months, gradually pushing growth rates into negative territory,” according to the Luxembourgish economist.
Swift interventions by public authorities have restored calm to the financial markets
The swift interventions by public authorities to put an end to the turbulence in the banking sector triggered by the debacles of Silicon Valley Bank and Credit Suisse last month have restored calm to the financial markets. Thus, government bond yields were very stable, ending April at levels similar to those posted at the end of March.
Stock markets gained slightly despite the banking crisis
After the strong resilience shown in March despite the banking crisis, stock markets appreciated slightly in April, a month that is traditionally favourable for equity prices. However, the strength of the European currency prevented the MSCI All Country World Index Net Total Return in euro from rising. In local currency terms, the S&P 500 in the US, the Stoxx 600 in Europe and the Topix in Japan were all positive over the month. Only the MSCI Emerging Markets index fell, affected by China's military manoeuvres to simulate an encirclement of the island of Taiwan. “At the sector level, defensive companies, most of which reported strong results, and oil stocks performed best, while companies in other more cyclical sectors are beginning to be affected by the economic slowdown,” says Guy Wagner. “Energy, consumer staples and health care were the strongest performers, while consumer discretionary, technology and materials were the weakest.”