Global economy has steadily improved in early summer

Although some countries have taken measures to curb the pandemic, the restrictions are limited and the economy is continuing to recover, both in manufacturing and services, says Guy Wagner, Chief Investment Officer and managing director of BLI - Banque de Luxembourg Investments.

Managing Director

BLI - Banque de Luxembourg Investments

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The global economy continues to improve in the early summer despite the re-emergence of the coronavirus pandemic in the wake of the spread of the Delta variant, write Guy Wagner and his team in their latest market report “Highlights”.

Dynamic economic growth in the US and in Europe 

In the United States, second-quarter GDP grew at an annualised rate of 6.5% compared to the previous quarter.

“Although slightly below expectations, this preliminary estimate confirms the rebound’s strong momentum under the combined effect of an accommodative monetary policy and massive fiscal stimulus”

Guy Wagner, Chief  Investment Officer and managing director of the asset management company BLI – Banque de  Luxembourg Investments

In the eurozone, over the same period, GDP grew at an annualised rate of 2% compared to the previous quarter and 13.7% compared to the same quarter in  2020.  

Federal Reserve: no interest rate hike before 2023 

The Federal Reserve’s monetary policy committee (FOMC) left monetary policy unchanged at its July meeting. Chair Jerome Powell indicated that he was waiting to see a stronger labour market before revising the asset purchase programme. Inflation is still regarded as a temporary phenomenon.  Discussions about a future interest rate hike are largely premature, with the majority of members not envisaging raising rates before 2023. In Europe, the Governing Council of the ECB is maintaining its accommodative monetary policy stance but has unveiled a new strategy that sets 2% as a symmetric inflation target rather than a ceiling.

This should ensure that interest rates stay very low  for even longer than expected.” 

Guy Wagner, Chief  Investment Officer and managing director of the asset management company BLI – Banque de  Luxembourg Investments

Treasury yields have fallen significantly 

Despite the deterioration in inflation figures, US Treasury yields have fallen significantly without any obvious explanation. In the eurozone, long-dated yields also declined, with the benchmark 10-year  government bond yield dropping in Germany, France, Italy, and Spain.

Equity markets show a wide range of regional variations 

Equity markets began the second half of the year on a mostly positive note, despite a wide range of regional variations. From an overall perspective, the MSCI All Country World Index Net Total Return continued its good performance. In the US, the three major indices revolve around all-time highs.  Emerging markets were particularly impacted by the woes of the Chinese equity markets as the Chinese government tightened its regulatory grip on the technology sector.

“In terms of sectors, relative performances were not linear: defensive sectors got off to a fairly favourable start, with cyclicals rebounding later. In the end, they posted similar monthly performances”

Guy Wagner, Chief  Investment Officer and managing director of the asset management company BLI – Banque de  Luxembourg Investments
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Global economy has steadily improved in early summer