In the United States, both household consumption and corporate investment have recently shown signs of weakness, while the eurozone is seeing a significant divergence between industrial activity and services.
Economic growth is continuing to slow in most regions. In the United States, both household consumption and corporate investment have recently shown signs of weakness. "The eurozone is seeing a significant divergence between particularly weak industrial activity due to its strong dependence on external demand, and a services activity which is holding up relatively well given the continuing improvement on the job market", indicates Guy Wagner, Chief Investment Officer and managing director of the asset management company BLI - Banque de Luxembourg Investments. In Japan, GDP growth in the fourth quarter of 2018 returned to positive territory, despite a marked decline in exports due to the weakness of external demand.
Monetary and fiscal stimulation measures in China
In China, the government is taking monetary and fiscal stimulation measures that are likely to lead to an economic upturn during the year. "Separately, the probable signing of a memorandum of understanding between the US administration and the Beijing authorities should prevent a further escalation of the trade war and foster a gradual recovery in global trade, even though a possible agreement does not mean that the geopolitical tensions between the world's two biggest economies have been definitively resolved."
The Federal Reserve applies a more patient approach in their interest rate policy
The minutes of the January meeting of the Federal Open Market Committee (FOMC) confirm that the US monetary authorities are leaning towards a more patient approach in their interest rate policy, suggesting a pause in their cycle of raising interest rates. Concerning its strategy for balance sheet normalisation, the FOMC has indicated that it is favourable to the idea of a permanently bigger size than before the crisis and that it envisages informing investors as early as possible about the end date of the normalisation period. In Europe, the European Central Bank (ECB) seems to be open to further expanding its balance sheet by reintroducing longer-term refinancing operations if the recent signs of economic slowdown in the eurozone are confirmed.
Bond markets have almost remained unchanged since the beginning of the year
The significant rebound on the equity markets since the start of the year has not prompted a reversal on the bond markets. In February, government bond yields increased only marginally. "The prospects of economic slowdown and a further reduction in inflationary pressures are keeping long-dated yields at low levels."
Equity markets continue to rally
Following on from the January rebound, equity markets continued to rally in February. "The equity markets are benefiting from the US Federal Reserve's more moderate stance on the future direction of monetary policy as well as signs of trade tensions easing between the United States and China. In terms of sectors, the upturn has been led by technology and industrial stocks, recouping a large part of the losses accumulated at the end of last year", concludes Guy Wagner.
Guy Wagner, chief investment officer at BLI - Banque de Luxembourg Investments