After the cyclical deceleration in 2019, the pace of growth of the global economy is stabilising.
In the United States, real GDP increased by 2.3% over full-year 2019 compared to 2.9% in 2018. "Hopes for an economic recovery rest primarily on an improvement in activity in the real estate sector, which is benefiting from the significant fall in mortgage rates", indicates Guy Wagner, Chief Investment Officer and managing director of the asset management company BLI - Banque de Luxembourg Investments. "In Europe, the stabilisation of activity indicators in the manufacturing sector suggests that the economic slowdown may have bottomed out, but signs of recovery remain too precarious to expect a vigorous and sustainable rebound." In Japan, the October 2019 VAT hike and weak global trade continue to weigh on the level of activity. In China, government efforts to contain the spread of the coronavirus risk thwarting the modest economic improvement seen since the beginning of the year.
Fed and ECB keep main interest rate unchanged
In line with expectations, the US Federal Reserve kept its main interest rate unchanged, holding to the same wait-and-see stance as at the previous meeting in December. In Europe, the European Central Bank also left its monetary policy unchanged, with the deposit facility rate remaining at -0.5% and the asset purchase programme at EUR 20 billion per month. In addition, ECB President Christine Lagarde announced the official launch of a comprehensive one year-long strategic review of the ECB's future missions, goals, and resources.
Government bond yields ease
"Uncertainties over the impact on global economic growth of a possible major spread of the coronavirus supported the prices of safe-haven financial assets, causing government bond yields to ease in January", says the Luxembourgish economist. The US 10-year Treasury yield and the 10-year benchmark yields in Germany, in France, in Spain, and in Italy declined.
Fears of a possible proliferation of the coronavirus weighed on share prices
After starting the first fortnight of January with the same favourable momentum that had enabled equity markets to end 2019 on a strong note, they gave up their gains in the second half of the month. "Fears of a possible proliferation of the coronavirus weighed on share prices." Over the month as a whole, the MSCI All Country World Index Net Total Return expressed in euros was virtually unchanged. The S&P 500 in the United States, the Stoxx Europe 600 and the Topix in Japan decreased slightly. Emerging market equities amplified the downward trend, with the MSCI Emerging Markets index giving up 4.7% (in USD). "Utilities and technology were the best performing sectors, while energy and materials brought up the rear", concludes Guy Wagner.
Guy Wagner is chief investment officer at BLI - Banque de Luxembourg Investments