In the US, some service activities have shown signs of less vigour here and there compared with the robust growth recorded in the second half of 2023, without however signalling any real change in trend, note Guy Wagner and his team in their latest monthly market report "Highlights".
“In contrast, activity indicators in the manufacturing sectors rebounded slightly, suggesting a possible recovery in industrial demand,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments. “In the eurozone, economic indicators painted a mixed picture between the various countries, with weak industrial activity continuing in Germany, while France seems to be recording a slight improvement in economic activity.” In China, the central bank lowered interest rates to support real estate activity, whose persistent weakness is preventing an improvement in the country's business climate. In Japan, GDP contracted for the second consecutive quarter, affected by a decline in both household consumption and business investment.
Continued robust corporate earnings, the resilience of the US economy allaying residual fears of recession, and the continuing hype surrounding the artificial intelligence theme, triggered new record highs for several indices and leading stocks. Guy Wagner
The pace of disinflation appears to be slowing down slightly
While inflation continues to weaken on both sides of the Atlantic, the pace of disinflation appears to be slowing down slightly. In the US, for example, headline inflation fell from 3.4% in December to 3.1% in January. In the Eurozone, overall inflation fell from 3.3% in January to 3.1% in February.
No immediate interest rate cuts in the US and in the eurozone
Following the slowdown in disinflation in January, US monetary authorities further dampened hopes of a key rate cut at their next meeting in March. In the eurozone, comments from various monetary officials suggest that a loosening of monetary policy is definitely considered premature at the current stage.
Inflation may prove more persistent than hoped
“The deceleration in the pace of disinflation, suggesting that inflation may prove more persistent than hoped, extended the upward movement in bond yields that began in January,” emphasises the Luxembourgish economist. The yield to maturity on the 10-year US Treasury note rose to 4.25%. In the eurozone, the benchmark 10-year yield increased in Germany, France, Italy and Spain.
New record highs for several indices and leading stocks
Stock markets remained buoyant in February. Guy Wagner: “Continued robust corporate earnings, the resilience of the US economy allaying residual fears of recession, and the continuing hype surrounding the artificial intelligence theme following Nvidia's again stunning results, triggered new record highs for several indices and leading stocks.” The MSCI All Country World Index Net Total Return, expressed in euros, gained 4.7%, surpassing its January high. In geographical terms, the S&P 500 in the USA broke through the 5,000-point barrier for the first time. Europe's Stoxx 600 also set a new record. Japan's Topix rose by 4.9% (in JPY), while the Nikkei even surpassed its former peak reached during the Japanese equity bubble of 1989. “Sector-wise, consumer discretionary, technology and industrials were the biggest gainers, while energy, consumer staples and utilities posted weak performances.”
