Luxembourg financial center could hit the anxiety index

At the beginning of April, the American President illustrated the contours of his trade policy « America First » by announcing a massive increase in tariffs. His « day of liberation » in the tariffs triggered panic on the financial markets and reflected the fears of inflationary effects (especially in the USA) and slowing growth.

« Since then, a reversal of the decision and retaliation on the other has followed, which further intensified uncertainty for investors, » sums up that Statistics office Statec « Conjoncture Flash » presented on Wednesday.

« Angestindex » climbs

The volatility indices for stocks, bonds and currencies in the most important markets in the world have risen sharply. The « Angestindex of the stock market », the Vix, which measures the volatility of the S&P 500, climbed to a level that had not been observed since the beginning of the health crisis.

In the first half of April, the raw material prices and the stocks – regardless of the industry or origin of the listed companies fell. However, the euro zone suffered less in this stock exchange bacle, as Statec states.

The Euro Stoxx 50 recovered after the announcement of a 90-day break at the so-called « mutual » tariffs, while other important reference indices continued their downward trend.

In the first four months of 2025, the European stock index recorded a modest growth of 5.6 percent, while the American S&P 500 recorded a decrease of six percent and Japanese Nikkei 225.

Demand for government bonds rose for the euro area

The euro rated the currencies of the most important trading partners, with the nominal effective exchange rate of the euro area rose to the highest level since the zone was founded. The demand for government bonds rose for the euro area, while for US trasuries, i.e. safe ports that are normally preferred with rising risks, they returned, since there was a certain distrust of the US debts and some hedge funds carried out automatic sales.

The monetary policy orientations also diverge on this side and beyond the Atlantic. The European Central Bank (ECB) reduced its key interest rates again. According to the ECB, the conditions for further short -term interest rate cuts are still available. The expected inflation boost beyond the Atlantic could prevent the Fed from loosening its monetary policy in 2025. The U.S. Leiszins would therefore remain restrictive, while the European key interest rate would fall back into the neutral area.

Loss of trust in US financial investments

According to Statec, the loss of trust in US financial investments could lead to investors prefer assets from stable European countries. In Luxembourg -based investment funds, a net sales of 60 billion euros in assets have recorded a record in the first quarter, a record in the past four years.

The administration of investment funds is of central importance for the activities of the country and its trade in financial services, as the statistics office says. Luxembourg could therefore gain market shares if it would be due to investors with stock market -traded funds (ETFs) that invest in US shares – which are mainly based in Ireland.

The demand for and offered loans for companies and households should in turn benefit from the reduction of the ECB control interest. The volume value creation of the financial sector could therefore be supported by an increase in the net fund emissions and the loan volume, while at the same time supported by a low price effect (lower interest and stock exchange ratings), Statec is stated.

View of the housing market

In the fourth quarter of 2024, sales prices for residential properties in Luxembourg rose by 1.1 percent in the quarterly comparison. An increase could be observed in both houses and apartments, while the prices for new apartments remained stable. For the first time since the end of 2022, real estate prices have growth in the annual basis (+1.4 percent in the annual quarter of 2024), but their level is still significantly below the highest level in the third quarter of 2022 (around 15 percent).

In the euro zone, the prices according to Statec have also increased again for a few quarters, whereby they benefit in particular from the lower mortgage interest. The sales prices recorded an increase of 4.2 percent compared to the previous year in the 4th quarter of 2024 and are already slightly above their high in autumn 2022.

However, developments in the entire currency area are very different. In some countries, real estate sales prices do not yet show any significant relaxation, such as in Finland or France. In other countries such as Luxembourg and Germany, prices are increasing moderately. The Iberian countries and the Netherlands, on the other hand, record strong price increases (over ten percent in the year).