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The economic data from the major economies is very mixed. While the recovery in Europe and Asia is stabilizing somewhat, the US economy has recently shown less momentum – albeit at a high level. “For the portfolios, this means that we are setting the equity overweight in the US and also for tech stocks to neutral, but continue to expect stable price developments,” reports Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM, on the results of the asset allocation conference.

When looking at the markets, the focus is on the development of inflation rates, possible consequences for the future monetary policy of the central banks, geopolitical tensions and the upcoming US presidential election in November. “We see no clear trend compared to the previous quarter,” says Gerlinger. “While the economies in Europe and Asia, particularly China, are on a slight recovery path, the US economy is showing signs of a slight slowdown from a higher level.”

A further boost to the economic upturn in Europe is being provided by the growth in real wages, which is supporting consumption. Europe will also be supported by the ECB’s decision on June 6 to cut its key interest rate by 25 basis points. This should improve credit conditions for companies. “Although the latest inflation data is slightly higher again at plus 2.6% compared to the same month last year, the central bankers’ decision to cut interest rates is likely to have been driven by the longer-term decline in inflation in recent months,” says Gerlinger. Further interest rate cuts by the ECB in the further course of the year seem possible, but this depends above all on the development of inflation.

Asia is also seeing a pleasing, albeit modest, economic recovery, particularly in China. “After the slowdown in the wake of the Covid pandemic and the crisis in the real estate sector, which is still smouldering, small signs of improvement were already visible in the last quarter,” says Gerlinger. These have now intensified further. “The fiscal policy measures to support the economy appear to be working, and growth of up to five percent seems possible.”

The positive trends in Europe and China could reinforce each other due to their close trade links. “But despite all the positive effects: Individual countries or sectors in Europe could also suffer from China’s increasingly strong positioning on the global market,” says Gerlinger. In Germany, this includes mechanical engineering, for example, but also the automotive industry, which the EU wants to support with tariffs on imports of Chinese vehicles.

In contrast to the positive picture in Europe and China, the economic strength of the US is slowing slightly from a high level. “The labour market is still very resilient, especially because significantly more jobs than expected were created again in May 2024,” says Gerlinger. The number of illegal migrants from Mexico is also providing significant support for GDP, with an estimated increase of 0.7% per year for this reason alone. As a result, this will continue to ensure relatively high wage growth, a possible rise in inflation and thus also rising interest rates. “The upcoming election of the next US president at the beginning of November brings further uncertainty,” says Gerlinger. “In this respect, it is advisable to weight US positions somewhat more neutrally.”

Additional information is available at www.moventum.lu.