“In the US, domestic consumption continues to grow, although it is increasingly driven by the wealthiest households,” says Guy Wagner, Chief Investment Officer (CIO) of BLI - Banque de Luxembourg Investments. “Business spending is also robust, thanks in particular to investment in artificial intelligence.” In the eurozone, economic growth is weaker, especially in the manufacturing sector. “Hopes for recovery rest on the positive impact of increased German public spending from the beginning of next year at the latest.” In China, deflationary pressures persist due to weak domestic demand, the lack of recovery in the real estate market and overcapacity in the industrial sector. In Japan, exports in August fell year-on-year for the fourth consecutive month due to US tariffs, with GDP growth now relying mainly on domestic consumers.
US inflation has stabilised at around 3%
In the United States, inflation has stabilised at around 3%, “showing little impact from tariffs so far, but remaining above the Federal Reserve's 2% target”, adds the Luxembourgish economist. Overall inflation rose from 2.7% to 2.9% in August, while inflation excluding energy and food remained stable at 3.1%. In the eurozone, inflation remains close to the European Central Bank‘s target, with the overall inflation rate rising from 2.0% to 2.2% in September.
US Federal Reserve lowers rates by 25 basis points
As expected, the Federal Reserve lowered the target range for the federal funds rate by 25 basis points to 4% - 4.25%. Given the still restrictive level of interest rates and weak job creation in recent months, Fed Chairman Jerome Powell judged that, within the framework of his dual mandate, the goal of full employment was more at risk than that of 2% inflation. In the eurozone, the ECB kept its key interest rates unchanged, believing that the disinflation process that has been underway since October 2022 is coming to an end.
Equity markets continue their climb to new highs
In September, equity markets continued their climb to new highs. Guy Wagner: “Once again, momentum was largely driven by artificial intelligence following Oracle's announcement of spectacular growth in its data centre infrastructure business over the next few years. This wave of optimism quickly spread to Asian markets, which were in turn galvanised by announcements of massive investments in this area by Chinese tech giants.” Against this backdrop, the MSCI All Country World Index Net Total Return, denominated in euros, gained 3,2% over the month. Regionally, the S&P 500 (in USD), the STOXX Europe 600 (in EUR), the Topix in Japan (in JPY) and the MSCI Emerging Markets Index (in USD) all rose. “By sector, the best performers were technology, communication services, and consumer discretionary, while real estate, healthcare, and consumer staples declined during the month.”