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Growth figures in Europe are surprisingly strong

Growth figures in Europe are surprisingly strong

Guy Wagner and his team in their latest monthly market report “Highlights”.
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2 AUG, 2022

By Guy Wagner


The second quarter GDP figures confirm that global economic growth is losing momentum. In the United States, GDP fell by 0.9% at an annualized rate compared to the first three months of the year, recording a second consecutive quarter of decline.

In China, GDP grew by only 0.4% year-on-year due to strict containment measures, which have, however, since been lifted. In Japan, exports remain the most dynamic component of GDP, with the slowdown in global demand showing little impact so far. Overall, most activity indicators for the month of June were relatively weak in both manufacturing and services, suggesting a continued moderation in the pace of global economic growth going into the third quarter.

U.S. Federal Reserve raises key interest rate for second time in a row

In July, the Federal Reserve's monetary committee proceeded with its second consecutive 75 basis
point increase as expected, taking the federal funds rate target range to 2.25% - 2.50%. Jerome Powell, the top U.S. monetary official, gave no new indication of future rate action. A further tightening of 50 basis points at the next meeting in September is currently the most likely scenario. In Europe, the central bank raised all three key rates by 50 basis points, ending the era of negative interest rates. The ECB's refinancing rate, which is its most important policy rate, now stands at 0.50%. Governing Council President Christine Lagarde also presented the new anti-fragmentation tool, which is designed to prevent too wide a spread in funding rates within the eurozone. “If such a spread were to occur, the ECB could intervene under certain conditions by purchasing without limit the bonds of the most pressuredcountries,” underlines the Luxembourgish economist.

Government bond yields fall sharply

On the bond markets, government bond yields fell sharply on both sides of the Atlantic due to the many signs of economic slowdown. Over the month of July, the benchmark 10-year yield fell in the United States, in Germany, in France, in Italy and in Spain.

Strong rebound of equity markets

After the historic decline in stock prices in the first half of the year, the equity markets rebounded strongly in July. “The publication of good corporate results by most of the heavyweights in the main stock market indices brought relief to investors, who became more inclined to take equity risks once again.” Thus, the MSCI All Country World Index Net Total Return registered its largest monthly increase since April 2020.
Only the emerging countries did not participate in the rebound. “At the sector level, the best performances were achieved by technology and consumer discretionary stocks (including luxury goods in particular), which rebounded strongly from their first-half underperformance,” concludes Guy Wagner.

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