The cautious economic optimism that blossomed three months ago has faded, according to Moventum AM.
“At least for Europe and China, the outlook has once again clouded,” says Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM. “The US, on the other hand, is proving resilient, benefiting from consumer spending, while the stock market gains from the Fed’s interest rate cut plans.” Overall, investors need to be more selective in a weakening global economy.
Leading indicators in June pointed to a slight economic rebound in Europe and China, but in hindsight, this was not sustainable. In contrast, expectations for the US were confirmed. “With a growth rate of three percent, the US economy once again performed surprisingly well in the second quarter,” says Gerlinger. “However, overall, the relatively low growth of the global economy is weakening slightly.” There is no recession expected in the US, which contrasts with Europe, where major economies are already in or on the verge of a recession.
“While there is a sense of optimism in the UK following the parliamentary elections, the rest of Europe lacks the political ideas to stimulate economic growth,” says Gerlinger. Contrary to expectations from three months ago, the disinflation trend, especially in the US, is back on track. In the Eurozone, however, service sector inflation remains high at over four percent. “Achieving central bank target rates of around two percent inflation now seems more realistic, especially since there is also some labor market easing, particularly in the US,” Gerlinger says.
China is suffering from a severe confidence crisis, with the real estate market still deep in trouble, rendering monetary policy measures ineffective. Nevertheless, economic growth for 2024 is projected to be nearly five percent. “But despite this high growth compared to Europe and the US, it no longer suffices to play the role of the world’s economic locomotive as it did a few years ago,” says Gerlinger.
Not everything is rosy in the US either. “The US economy continues to be driven by strong consumption, recently reflected in the highest retail sales increase since early 2023,” says Gerlinger. But high credit costs, declining savings, and rising debt are likely to impose clear limits over time. “Currently, the US presidential elections are playing a minor role in international stock markets,” Gerlinger notes, primarily because too little is known about Kamala Harris’s program. “The more these changes, and as Election Day approaches, the more this topic will become relevant for the markets,” says Gerlinger. If one party wins the majority in both houses, a continuation of expansive fiscal policy is expected. However, this would hardly remain without negative consequences for inflation and interest rate markets in the long term.
Hopes now rest on central banks to create the desired growth impulses through potentially aggressive interest rate cuts. “Stock markets are benefiting from the prospect of significant interest rate cuts and are trading near their peaks,” says Gerlinger. “However, they are overlooking the fact that such high expectations for rate cuts would only be justified in the case of a recession. It is quite possible that, as in the spring, much of the interest rate cut speculation will have to be priced out again.”
