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Economic growth continues to hang on the drip of the services sector, which, however, proves to be sufficiently robust to prevent negative overall growth ,write Guy Wagner and his team in their latest monthly market report "Highlights".

In both, the United States and the eurozone, growth indicators continue to diverge, with the manufacturing sector contracting and the service sector continuing to grow, buoyed by the resilience of consumer spending. “In China, the catching-up process linked to the reopening of the economy at the start of the year is already showing signs of running out of steam, with activity indicators deteriorating and the manufacturing sector in contraction,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments.

Almost everywhere, the tightening of financing conditions over the last few quarters is impacting the most cyclical activities and raising the question of the resilience of services and household consumption.Guy Wagner

Central banks continue to slow the pace of monetary tightening

At their meetings at the beginning of May, the Monetary Committee of the US Federal Reserve and the Governing Council of the European Central Bank agreed to reduce the pace of their monetary tightening, with increases in their key rates limited to 25 basis points. “While Jerome Powell hinted at a pause in the rate hike cycle on the US side, this was not yet the case for Christine Lagarde, who insisted that the work of fighting inflation in the eurozone was not yet complete,” specifies the Luxembourgish economist.

Federal debt ceiling hike by the US Congress in the spotlight

While monetary policy tightening appears to be nearing an end and inflation has passed its inflection point, investor attention in May was focused on the saga of the US Congress raising the federal debt ceiling. Government bond yields thus rose in the United States while they eased in the eurozone compared with the end of April.

Stock market indices performed very differently over the month

“Faced with the task of digesting the performance accumulated since the start of the year and with sometimes contradictory signals, stock market indices performed very differently over the month” (as shown by the 11% difference between the Nasdaq 100 and the Dow Jones index in favour of the former, for example). However, the fall in the value of the European currency led to a solid rise in the MSCI All Country World Index Net Total Return, expressed in euros, which advanced by 2.5% over the month. In local currency terms, the US S&P 500 gained 0.3% (in USD), Europe's Stoxx 600 fell 3.2% (in EUR) and Japan's Topix gained 3.6% (in JPY). The MSCI Emerging Markets index fell by 1.9% (in USD), affected by the sluggishness of China's economic recovery and the resulting decline in the country's equity indices. “In terms of sectors, companies in growth sectors, particularly technology with its focus on artificial intelligence and telecommunications, performed best, while companies in more cyclical sectors exposed to the global slowdown, such as energy and commodities, suffered the most,” concludes Guy Wagner.

Guy Wagner, Chief Investment Officer

An economics graduate from the Université Libre de Bruxelles, Guy joined Banque de Luxembourg in 1986 where he was head of the Financial Analysis and Asset Management departments. He was appointed Chief Investment Officer of BLI – Banque de Luxembourg Investments in 2005.

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