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Despite the remarkable resilience of American domestic consumption, the global economic slowdown continues.
- The global economy remains fragile
- Federal Reserve signals possible rate cut
- Bond yields are falling
- A euphoric end to the year for many stock indices
Despite the remarkable resilience of American domestic consumption, the global economic slowdown continues. In the USA, the excess financial reserves built up by households during the pandemic made it possible to avoid a significant weakening in demand throughout 2023 despite the significant tightening of monetary conditions, write Guy Wagner and his team in their current analysis report on the financial situation of the markets. the “highlights”.
“However, due to the gradual exhaustion of the savings subsidy, domestic consumption is showing slight signs of weakening, which could intensify in 2024,” says Guy Wagner, the company’s chief investment officer (CIO). BLI Management – Banque de Luxembourg Investments. “In the Eurozone, additional energy costs and less generous tax breaks explain the sharper slowdown in economic activity, which continued to slow in the fourth quarter.”
The global economy remains fragile
In China, the lack of recovery in the construction sector remains the main obstacle to a more favorable economic situation, especially since the public sector seems unwilling to launch large-scale support programs that are supposed to be financed by additional debt. In Japan, high inflation is putting a strain on real household incomes over the course of the year despite favorable wage agreements. “Overall, the global economy remains fragile, especially since the central banks’ monetary policy tightening is unlikely to have its maximum effect until the first half of 2024.”
Federal Reserve signals possible rate cut
As expected, the US Federal Reserve left its key interest rates unchanged at its December meeting. Its President Jerome Powell even indicated for the first time since the start of the monetary policy tightening campaign that the next key interest rate move could be downwards. “From now on, the consensus of analysts expects six rate cuts in 2024, which is twice as high as the official forecasts of the Monetary Committee, and expects a first easing in March,” estimates the Luxembourg economist. In the Eurozone, too, the European Central Bank left its key interest rates unchanged in December. Although economic growth was weaker than in the United States, it was more reluctant to announce a reversal in the direction of its key interest rates. According to President Christine Lagarde, a possible cut in interest rates was not discussed at any point during the December ECB Governing Council meeting.
Bond yields are falling
The Federal Reserve’s forecast for monetary policy easing in 2024 has added to the easing movement in bond rates that began in November on both sides of the Atlantic. In the United States, the yield on the 10-year government bond fell until maturity. In the euro area, the 10-year key interest rate fell in Germany, France, Italy and Spain. In December alone, the JP Morgan EMU Government Bond Index rose 3.6%, bringing the increase for all of 2023 to 7.0%.
A euphoric end to the year for many stock indices
The Federal Reserve’s policy shift, which boosted hopes of easing monetary policy in 2024 without triggering a recession, allowed stock markets to continue their rally after already posting a sharp rise in November. “Thanks to a euphoric end to the year, many stock market indices approached or even exceeded their previous records from around two years ago,” concludes Guy Wagner. “At a sector level, real estate, industrials and materials benefited most from the prospect of rate cuts, while most energy, consumer staples and utilities stocks did not. “Hardly participated in the rise in share prices.”
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