In the United States, corporate and residential property investments have ceased to contribute to growth. In the eurozone, the lack of any improvement in the manufacturing sector continues to be affected by weak global trade.
In the United States, robust domestic consumption boosted by a favourable job market has enabled GDP to continue to post annualised growth of around 2%, whereas corporate and residential property investments have ceased to contribute to growth. "In the eurozone, the low level of the IFO business climate index in Germany reflects the lack of any improvement in the manufacturing sector, which continues to be affected by weak global trade", explains Guy Wagner, Chief Investment Officer and managing director of the asset management company BLI - Banque de Luxembourg Investments. "The global economic slowdown seems to be intensifying."
Economic activity in Japan and China also weak
In Japan, the planned increase in VAT in October, weak exports to China, and moderate wage rises do not point to the economy picking up. "In China, the public authorities continue to unleash ad hoc economic stimulus measures to offset the unfavourable effects on growth caused by the Trump administration's customs tariff increases."
Fed-chairman Powell: no clear indication on future interest rate development
Neither the US Federal Reserve's monetary policy committee nor the Governing Council of the ECB held a meeting in August. At the end of the month, the Federal Reserve Chairman Jerome Powell gave a speech at the US central bank's annual symposium at Jackson Hole. The chief of US monetary policy gave no clear indication on its future direction. He confirmed that he would ‘act as appropriate' to sustain the economic expansion cycle in an environment of near-full employment and inflation close to its target. He added that fitting trade uncertainty into its policy decision-making framework posed a new challenge. The US dollar was the beneficiary of his declarations: "The absence of any clear indication from Jerome Powell of substantial monetary easing in the United States, and the prospect of the forthcoming announcement of additional monetary expansion measures in the Eurozone", according to the Luxembourgish economist.
Equity markets slightly lower
In August, yields to maturity on the bond markets fell further "due to signs of the global economic slowdown intensifying and the continuing tussle between the United States and China", as Guy Wagner states. The flagship index for global equities, the MSCI All Country World Index Net Total Return (expressed in euros) corrected at the start of the month following the US President's announcement of new customs duties on Chinese imports, subsequently stabilising in the second half of August. Over the month, the S&P 500, the Stoxx 600 in Europe, and the Topix in Japan were slightly lower, whereas the MSCI Emerging Markets suffered a larger decline.
Guy Wagner is chief investment officer at BLI - Banque de Luxembourg Investments