While economic activity remains resilient in the United States, signs of weakness are multiplying in Europe and China, write Guy Wagner and his team in their latest monthly market report "Highlights".
In the United States, economic activity is benefiting from continued robust domestic consumption, which is keeping service industries on a growth trajectory. Even orders for capital goods have recently improved, despite the downward trend that most indicators of activity in the manufacturing sector have begun to follow. “In the eurozone, however, the weakness seems to be becoming more widespread, with the composite purchasing managers' index approaching the 50 mark in June, marking the boundary between expansion and contraction, due to a major bout of weakness in the services sector,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments. In China, the catching-up process linked to the reopening of the economy at the start of the year is running out of steam, prompting the Prime Minister to reassure that the country will achieve its annual GDP growth target of 5%. “Overall, the global economic slowdown continues, driven by the tightening of monetary conditions by central banks.”
Overall, the global economic slowdown continues, driven by the tightening of monetary conditions by central banks. Guy Wagner
In July, the ECB will probably raise key interest rates by another 25 basis points
As previously announced, the US Federal Reserve took a pause in its monetary tightening cycle in June. In the second half of the month, however, Chairman Jerome Powell suggested that tightening would resume soon, and that he would not rule out the possibility of successive rate hikes at future meetings. In Europe, the European Central Bank raised its main key rates by 25 basis points in June, bringing its refinancing rate up to 4%. President Christine Lagarde was very explicit about the next meeting in July, with a further 25 basis point hike already looking all but certain.
Government bonds yields increased slightly
Government bond yields rose slightly on prospects of further monetary tightening by central banks. The benchmark 10-year rate grew in the United States, in Germany, in France and in Spain, while it remained almost the same in Italy.
The Nasdaq index has recorded its best first half-year since 40 years
“Buoyed by the technology sector in particular and growth stocks in general, the world's stock markets ended the first half of 2023 on a high note”, underlines the Luxembourgish economist. “The Nasdaq index has risen by 29.7% since the beginning of January, recording its best first half-year since 1983.” In June, the agreement reached between Republicans and Democrats on raising the ceiling on the US public debt, the hype surrounding artificial intelligence and the resilience of the US consumer pushing back expectations of a recession provided solid gains for most stock market indices. “In terms of sectors, consumer discretionary, industrials and materials made the biggest gains, while utilities, communication services, healthcare and consumer staples hardly participated in the market rally”, concludes Guy Wagner.