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The first signs of a moderation in global economic growth are on the horizon. The moderation in activity seems to be more the result of the ongoing disruptions in supply chains than any major weakening of demand, write Guy Wagner and his team in their latest market report "Highlights".

Although most activity indicators are holding up, they appear to be starting to drop back from the very high levels of previous months. In the United States, for example, the manufacturing activity index fell for the second consecutive month after 15 months in a row of almost uninterrupted growth.Guy Wagner, Chief Investment Officer and managing director of the asset management company BLI - Banque de Luxembourg Investments

“In services, the activity index was also down slightly due to the rise in coronavirus infections, although this should prove temporary.” The trends appear similar in Europe, with activity remaining robust but possibly at a turning point.

Moderation of economic growth in China continues

In China, the pace of growth has continued to moderate in recent months due to the simultaneous effect of strict restrictions to curb the epidemic, tighter regulatory measures in almost all economic sectors, a shortage of electricity, and the financial difficulties of China Evergrande, the country's second biggest property developer. In Japan, exports continue to be the most dynamic segment, as yet showing no signs of weakening.

US Fed signals upcoming reduction in asset purchases

The FOMC (the Federal Reserve's monetary policy committee) left its monetary policy unchanged at its September meeting. Nevertheless, Fed Chair Jerome Powell signalled that it would start tapering asset purchases, from the next meeting in November through to mid-2022. On the subject of the future level of interest rates, Powell reiterated that the end of asset purchases did not mean a simultaneous rise in interest rates. “Opinion in the FOMC seems to be divided on this subject since half its members are expecting a first interest rate hike in 2022.” In Europe, in view of the economic improvement and the surge in prices, the ECB announced a slight readjustment of asset purchases under the pandemic emergency purchase programme to a level slightly below that of the previous two quarters. At the December meeting, the monetary authorities expect to give more details on the monetary policy outlook for 2022.

Equity markets are getting more volatile 

Having risen almost every month since the beginning of the year, equity markets were more volatile in September. Guy Wagner: “Uncertainty surrounding the financial difficulties of property developer China Evergrande and the rise in long-term interest rates weighed on share prices.” In consequence, the major indexes in the United States, Europe, and the MSCI Emerging Markets recorded losses. The Topix in Japan was alone in rising, partially making up for the accumulated lag of previous months. “In terms of sectors, energy stocks stood out with a sharp increase in their share price on the back of rising oil and gas prices”, concludes the Luxembourgish economist.

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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