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US domestic consumption remains the main source of growth in a generally weak global economy. In the fourth quarter of 2023, the resilience of the US consumer was once again confirmed, enabling the gross domestic product to rise by an annualised 3.3% compared with the third quarter, note Guy Wagner and his team in their latest monthly market report "Highlights".

“Public spending and exports also contributed positively to growth, while business investment and real estate provided little support,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments.

Spain was the best performer, with growth of 0.6%,
while Italy's GDP rose slightly and France's stagnated.Guy Wagner

Eurozone’s GDP remained stable in the fourth quarter

In the eurozone, GDP remained stable in the fourth quarter. The weakest link remains Germany, where GDP fell by 0.3% quarter-on-quarter. “Spain was the best performer, with growth of 0.6%, while Italy's GDP rose slightly and France's stagnated.” In China, weak household confidence, affected by the persistent weakness of property prices, is weighing on consumption levels, generating expectations that the government will launch more substantial public support measures. In Japan, negative real wage growth is preventing an acceleration in economic growth.

Central banks keep key interest rates unchanged

In line with expectations, the US Federal Reserve left its key interest rates unchanged at its January meeting. At the same time, Chairman Jerome Powell tempered hopes of a first monetary easing in March. Although he has not formally ruled out such a move, he feels that an initial rate cut from May at the earliest is more likely, given that inflation is still above the 2% target and the job market is still buoyant. In the eurozone, the European Central Bank has also left its key rates unchanged. “Although it estimates that the disinflation process is well advanced, it considers discussion of possible interest rate cuts to be premature at this stage,” guesses the Luxembourgish economist.

Slight rise in bond yields in January

After easing sharply in the last two months of last year, bond yields rose slightly in January. The rise in long term interest rates was somewhat more pronounced in the eurozone than in the United States.

New record high for the S&P 500

Stock markets began the New Year with the favourable momentum seen at the end of 2023. Guy Wagner: “The continued publication of economic statistics confirming the slowdown in inflation and the resilience of the US economy, as well as signs of a recovery in orders in the semi-conductor sector, propelled several stock market indices to new all-time highs.” The MSCI All Country World Index Net Total Return, expressed in euros, rose by 2.3% in January, hitting a new high at the end of the month. In geographical terms, the S&P 500 in the United States surpassed its previous record of early 2022, posting an increase of 1.6% (in USD). Japan's Topix rose even by 7.8% (in JPY). Only the MSCI Emerging Markets index fell by 4.7% (in USD), “affected by the persistent weakness of Chinese equities. In terms of sectors, technology and telecoms services again led the way, followed by healthcare, while utilities, real estate and materials had a more difficult start to the year.”

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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