“In the USA, first-quarter growth in domestic consumption was revised considerably downwards, and household spending contracted in real terms in May, suggesting slightly less resilient demand than previously anticipated,” says Guy Wagner, Chief Investment Officer (CIO) of BLI - Banque de Luxembourg Investments. “In Europe, confidence indices picked up on hopes of an economic acceleration generated by the significant increase in defence budgets, while coincident economic indicators still show little signs of strength.” In China, public stimulus measures appear to be ensuring Gross Domestic Product growth slightly above the official 5% target, although deflationary pressures persist and the property market is not recovering. In Japan, exports to the US are slowing under the impact of US tariffs, reducing the potential for economic growth.

US tariff policy has yet to have an impact on domestic price indicators in the USA

US tariff policy has yet to have an impact on price indicators in the USA. The headline inflation rate rose slightly from 2.3% in April to 2.4% in May, while inflation excluding energy and food remained unchanged at 2.8%. In the Eurozone, June's headline inflation rate was exactly in line with the European Central Bank's 2% target, compared with 1.9% in May.

ECB: no further deposit rate cut expected in July

In line with expectations, the US Federal Reserve left monetary policy unchanged at its June meeting. Chairman Jerome Powell reiterated, as at the previous meeting in May, his wait-and-see stance with a view to observing which of its two objectives, full employment or 2% inflation, will prove more at risk following the new administration's tariff policy. In the eurozone, the ECB made the expected cut in its deposit rate by 25 basis points to 2%, but a further cut at the next meeting in July does not appear to be on the agenda. President Christine Lagarde said that the ECB was well positioned to deal with the uncertainties of the months ahead, and that there was no need to talk about the direction of monetary policy given that current inflation and forecasts were close to the 2% target.

First tangible signs of a slowdown in US domestic consumption

Despite the preparation of a tax bill further increasing the US budget deficit, US long-term interest rates eased slightly in June, “benefiting from inflation statistics that remained benign despite the rise in tariffs, and the first tangible signs of a slowdown in domestic consumption,” emphasises the Luxembourgish economist. By contrast, long-term interest rates rose slightly in the eurozone, despite the cut in the ECB's main policy rate. “The continued steepening of the European yield curve is the result of expectations of a stronger economic recovery in the years ahead.” 

S&P 500 at a new all-time high

Equity markets performed well in June, with most share prices continuing their recovery from the weakness experienced after ‘Liberation Day’ in early April. Guy Wagner: “Reduced tariff fears following the elaboration of a negotiating framework between the USA and China, as well as continued optimism regarding the theme of artificial intelligence, gave a further boost to most indices.” The slight 1.1% rise in the MSCI All Country World Net Total Return index, expressed in euros, was primarily due to the weakness of the US dollar. At the regional level, the S&P 500 in the USA rose by 5.0% (in USD), ending the month at a new all-time high. Only the Stoxx 600 Europe did not participate in the uptrend. “Sector-wise, technology, communication services and energy were the best performers, while healthcare, real estate and consumer staples recorded the least favourable trends.”

Guy Wagner, Chief Investment Officer

Originally from a family of entrepreneurs in Luxembourg and with a degree in Economics from the Université Libre of Brussels, Guy joined Banque de Luxembourg in 1986, where he was successively responsible for the Financial Analysis and Asset Management departments, then became Managing Director of BLI - Banque de Luxembourg Investments, an asset management company newly created in 2005.

From July 2022 on, he devotes himself exclusively to his role as Chief Investment Officer, to the management of the portfolios and to the management of the team in charge management of the various funds.