• Political uncertainty in France leads to losses in Europe
• ECB cuts interest rates, Bank of England and Fed to follow suit
• Investment policy unchanged

In June, the European financial markets were shaken by political uncertainties in France. After poorly conducted elections, President Macron called for early parliamentary elections, leading to rising interest rates on French government bonds and losses in French stocks. In other countries of the eurozone, risk premiums also rose, while investors fled to German government bonds. In the US, interest rates fell due to better-than-expected inflation figures. Globally, stocks made gains, driven by the US and emerging markets, while European stocks fell due to the political unrest in France. The US will elect a new president this year, which could influence expectations for 2025.

 

Positive signals came from the service sector and employment in the eurozone, with unemployment falling to 6.4%. However, inflation remains high, especially in the service sector. Indicators from Germany point to a stagnating economy, but consumer sentiment is improving. Artificial Intelligence (AI) is seen as the main driver of profit in the stock market. The inflation figures in the US were encouraging, with core inflation at 2.6% on an annual basis, creating room for possible interest rate cuts. The markets expect one interest rate cut in the United States in 2024, and two more for Europe. In the United States, the Fed still sees insufficient evidence for interest rate cuts, while the ECB has now taken the first step.

 

We’ve kept our investment policy unchanged. Recent data from the US have confirmed our picture of economic growth. Eurozone data were worse than expected, but we anticipate an upturn, especially in consumer spending. Earnings trends are positive in our view, and this is the reason for our overweight in equities.

Please find attached our last Asset Allocation Update for July.