BLI: AI boom is ensuring continued solid economic growth
The boom in the artificial intelligence sector is ensuring continued solid economic growth, note Guy Wagner and his team in their latest monthly market report 'Highlights'.
'In the United States, the acceleration in investment is becoming widespread, now extending to activities not directly related to artificial intelligence', says Guy Wagner, Chief Investment Officer (CIO) of BLI - Banque de Luxembourg Investments.
'Household consumption remains robust, despite persistent disparities between the affluent and less privileged segments of society. Conversely, the real estate market is struggling to recover, held back by high prices and restrictive mortgage rates.'
In the eurozone, rising defence budgets are beginning to stimulate economic activity, raising hopes for a more pronounced economic acceleration in the coming quarters. The Chinese economy continues to lose momentum due to persistently weak domestic consumption.
Exports and investments in cutting-edge technologies such as robotics, artificial intelligence and innovative pharmaceuticals are the main drivers of growth. In Japan, the reduction in the VAT rate on food products is expected to widen the budget deficit in 2026 despite an already strained fiscal situation.
Despite tensions in the Middle East, US inflation is falling slightly
Despite the rise in oil prices due to ongoing tensions between the United States and Iran, US inflation edged down slightly in July from 3.5% to 3.4%, while inflation excluding energy and food fell from 2.6% to 2.5%. In the eurozone, inflation rose in August from 2.9% to 3.3%, while core inflation (excluding energy and food) fell from 2.5% to 2.4%.
A rise in US key interest rates remains uncertain
At the traditional central bankers’ conference in Jackson Hole in the US, Federal Reserve Chairman Kevin Warsh did not provide clear guidance on future monetary policy, though he did emphasize that disinflation toward the 2% target was not proceeding at a fast enough pace.
'Although these statements have reignited speculation about a possible tightening of monetary policy, they do not preclude a rate hike at the September meeting, especially since financial conditions have already tightened significantly in recent weeks, driven by an upward shift across the entire yield curve,' according to the opinion of the Luxembourg economist.
Bond yields are rising in Europe
The initiative by US Treasury Secretary Scott Bessent to buy back long-term government bonds in an effort to curb the rise in long-term interest rates has not produced the desired results.
As a result, the 10-year Treasury yield has not eased and rose even slightly. In the eurozone, European yields have actually risen even further, with the benchmark 10-year yield up in Germany, France, Italy, and Spain.
Strong corporate earnings growth is supporting the stock markets
Following the sharp decline in artificial intelligence-related stocks in July, equity markets regained upward momentum in August, driven by easing volatility and robust quarterly earnings.
Guy Wagner: 'However, the strong earnings growth is partly due to one-time factors, notably the revaluation of equity investments in the technology sector, which boosted certain income statements.' Against this backdrop, the MSCI All Country World Index Net Total Return, denominated in euros, rose 1.7% over the month.
Geographically, the S&P 500 in the United States (in USD), the Stoxx Europe 600 (in EUR), the Topix in Japan (in JPY) and the MSCI Emerging Markets were all positive. 'By sector, materials, technology, and energy led the gains, while consumer staples, real estate, and utilities posted the most notable declines.'
