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While the global economy continues to slow, the US economy continues to defy gravity, note Guy Wagner and his team in their latest monthly market report "Highlights".

“According to first estimates, US gross domestic product in the third quarter accelerated sharply to post annualised quarterly growth of 4.9%, driven by the widening of the public deficit, very dynamic consumption and a strong restocking effect on the part of businesses,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments. “However, the levels reached in terms of public spending, the savings rate and inventories make this pattern difficult to sustain, as the environment is certainly more fragile than the growth figures suggest.”

Overall, the US economy, for reasons that appear to be specific and temporary, is now the last island of growth in a world slowing across the board, where the effects of monetary tightening continue to be felt. Guy Wagner

US economy is now the last pocket of growth

In the eurozone, GDP contracted by 0.1% quarter-on-quarter and is now up by just 0.1% year-on-year, “with worrying momentum”. In China, the announcements of support measures and a fiscal stimulus plan were not enough to revive activity indicators, which, after a slight upturn in September, deteriorated again in October in both the services and manufacturing sectors. In Japan, the widespread weakness of external demand is now having an impact on industrial production, which has fallen sharply over the past two months. “Overall, the US economy, for reasons that appear to be specific and temporary, is now the last pocket of growth in a world slowing across the board, where the effects of monetary tightening continue to be felt,” underlines the Luxembourgish economist.

The European Central Bank left its key rates unchanged

In line with expectations, the US Federal Reserve left its target range for the federal funds rate unchanged at 5.25% - 5.50% at its meeting on November 1st. Chairman Jerome Powell suggested that the gradual fall in inflation, coupled with the rise in long term bond yields, meant that these levels were likely to remain unchanged for some time, giving the Fed time to analyse the effects of past rate hikes on the economy. In the eurozone, the European Central Bank left its key rates unchanged after ten consecutive hikes. The refinancing rate is therefore stable at 4.5%. President Christine Lagarde suggested that monetary policy would be dependent on published data, but that the disinflationary trend that has taken hold in recent months was providing some comfort for a pause.

The yield to maturity on the 10-year US Treasury note rose to its highest level since 2007

In October, bond yields continued to rise in the United States, especially at the beginning of the month and on the longest maturities, due to the resilience of the economy. The yield to maturity on the 10-year US Treasury note rose from 4.57% to 4.93%, its highest level since 2007. In the eurozone, bond yields were rather stable.

Most stock prices fell in October

Overall, most stock prices fell in October, affected by the rise in US long-term interest rates, the outbreak of war between Israel and Hamas and a disappointing earnings season. The MSCI All Country World Index Net Total Return, expressed in euros, fell by 2.9% over the month. At regional level, the S&P 500 in the United States fell by 2.2% (in USD), the Stoxx 600 in Europe by 3.7% (in EUR), the Topix in Japan by 3.0% (in JPY) and the MSCI Emerging Markets index by 3.9% (in USD). “At sector level, utilities was the only sector to post a slightly positive performance, while consumer discretionary, industrials, energy and healthcare suffered the biggest declines,” 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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