Although recent economic statistics continue to reinforce the idea that the global economy is slowing, for the majority of countries, a recession does not appear to be imminent. This is opinion of Guy Wagner, Chief Investment Officer at BLI - Banque de Luxembourg Investments, and his team, in their monthly analysis, ‘Highlights’.

In the United States, the job market remains robust, job creation proving particularly strong in January despite the government's partial shutdown. In Europe, the slowdown is more explicit: “During the last three months of 2018, eurozone GDP only increased by 0.2% over the previous quarter, the slowest pace for four years”, indicates Guy Wagner, Chief Investment Officer and managing director of the asset management company BLI - Banque de Luxembourg Investments. “Japanese growth is heavily dependent on the outcome of the US-China conflict which is discouraging investment expenditure in China and, consequently, demand for capital equipment manufactured in Japan.” In China, the authorities are reacting to the economic slowdown with monetary and fiscal stimulus measures that are likely to have a favourable impact on growth towards the middle of the year.

USA and Europe keep their monetary policy unchanged

As expected, the US Federal Reserve left its interest rates unchanged after the monetary policy committee’s first meeting of the year: the upper limit of the federal funds rate remains at 2.5%. ”The monetary authorities nevertheless modified the message about their future intentions, indicating that they would now take a patient approach to further rate hikes whereas, previously, they had declared their aim of keeping a rising path”, underlines the Luxembourgish economist. By way of justification, Fed Chair Jerome Powell cited the multiple adverse economic winds such as the slowdown of the Chinese and European economies, uncertainties over Brexit, the trade war with China and the partial US government shutdown. In Europe, the Governing Council of the European Central Bank kept its monetary policy unchanged at its first meeting of the year.

Equity markets rebounded sharply in January

After December’s significant correction, equity markets rebounded sharply in January. Over the month, the S&P 500 in the United States, the Stoxx 600 in Europe, the Topix in Japan and the MSCI Emerging Markets recorded very positive performances. “In terms of sectors, the rebound was also fairly consistent, the best sector being energy, while, bringing up the rear, even utilities posted a decent rise.

Government bond yields continued their downward trend

The equity markets’ significant rebound in January did not prompt a reversal on the bond markets, as government bond yields continued their downward trend. The yield on the US 10-year Treasury note eased slightly while the eurozone 10-year benchmark yields declined even further. “The prospects of economic slowdown and a further reduction in inflationary pressures are keeping long-dated yields at low levels”, concludes Guy Wagner.