European equities manage positive returns despite tightening

A surprise interest rate cut from the People’s Bank of China early in June 2023 led to strong speculation that the next step would be a stimulus package to help awake this all important economy from its stupor. Thus far the reopening from the Covid inspired lockdown has been lacklustre so further government support would have been a welcome boost. Unfortunately, the best we got was a statement from the Governing Council stating new measures would come in a “timely manner”.

Not nearly enough to suggest this potential boost to global growth could be expected any time soon. In the US, disaster was averted with the passing of the bill to avert a technical debt default. Once again, a last minute bi-partisan deal was reached despite the bitter rhetoric in the run up to the event.

But not all US news was good as the Federal Reserve, despite not increasing interest rates at their monthly meeting, and despite inflation showing signs of slowing, presented a distinctly hawkish outlook, with the much anticipated pause clearly very short lived. In Europe a further 25bps was added to the base rate to reach 3.50%. Here too there was little sign of any potential pause or pivot in the immediate future.

This was despite the Eurozone entering recession in the period ending March 2023 as revised figures showed a 0.1% contraction in the first quarter of 2023 as well as the last quarter of 2022. The ECB had been expecting no growth so the result was only marginal but did fly in the face of the continual insistence by officials there would be no downturn.

The ECB still sees growth of +1.1% for the full year 2023 and +1.6% for 2024. While this aligns with the narrative of a second half recovery clearly there is now a steeper hill to climb.

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