“In the United States, the weakness in the fourth quarter was mainly due to temporary factors, including the prolonged federal government shutdown and the expiration of the electric vehicle tax credit. Adjusted for the decline in auto sales, consumer spending remained solid,” says Guy Wagner, Chief Investment Officer (CIO) of BLI - Banque de Luxembourg Investments. “In the absence of a sharp and sustained rise in energy prices following Israeli and US strikes against Iran, the tax measures contained in Donald Trump's “One Big Beautiful Bill” should support household consumption and business investment in the coming months.”
Particularly encouraging signals from Germany
In the eurozone, manufacturing activity indicators are showing tangible signs of improvement, pointing to a gradual return to industrial growth. “The signals are particularly encouraging in Germany, where the recovery in domestic orders suggests that the economy may be turning a corner,” emphasises the Luxembourgish economist.
Unchanged dynamic in China and Japan
In China, the overall dynamic remains unchanged: strong exports continue to contrast with persistently weak domestic demand. In Japan, GDP grew by only 0.1% quarter-on-quarter in the fourth quarter, a figure that was, however, affected by a decline in inventories that is likely to be revised later.
Decline of long-term interest rates in the United States
The combination of disappointing US growth in the fourth quarter and subdued inflation led to a widespread easing of long-term interest rates during the month. In the United States, the yield on 10-year government bonds fell, reaching its lowest level in 12 months. In the eurozone, the ten-year sovereign rate declined in Germany, France, Italy and Spain.
Geographical and sectoral disparities on equity markets
Although equity markets continued their positive momentum in February, geographical and sectoral disparities were particularly pronounced. These divergences are only partially reflected in the performance of the MSCI All Country World Index Net Total Return, which rose 2.1% in euros over the month. So did the US market underperform the equity world market index for the second consecutive month. In contrast, European and emerging markets posted solid performances, with the STOXX Europe 600 gaining 3.7% in euros and the MSCI Emerging Markets 5.4% in dollars, while the Japanese market stood out in particular with a 10.4% rise in yen. Guy Wagner: “At the sector level, technology services and software stocks came under pressure following the announcement of a new legal tool based on the Claude language model developed by Anthropic, raising questions about the sustainability of certain competitive advantages as artificial intelligence becomes more sophisticated. Against this backdrop, materials, utilities, and energy were the best performers, while technology, consumer discretionary, and communication services were the worst performers.”